443434w3the Financial and Economic Crisis A Decent Work Response (ILO, 2009)

The Financial and Economic Crisis:
A Decent Work Response

The Financial and Economic Crisis:
A Decent Work Response
INTERNATIONAL LABOUR ORGANIZATION

INTERNATIONAL INSTITUTE FOR LABOUR STUDIES
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First published 2009
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Who are the authors of
The Financial and Economic Crisis: A Decent Work Response?

The report has been prepared by the International Institute for Labour Studies, the
Employment Sector (Iyanatul Islam) and Policy Integration and Statistics Department
(Catherine Saget). It includes comments and contributions from the Director-Generals
Cabinet, the four strategic Sectors (Labour Standards, Employment, Social Protection
and Social Dialogue) and Policy Integration and Statistics Department.* It is published
under the responsibility of the Director of the Institute.
Section authors are:
Raymond Torres (Executive Summary)

Sameer Khatiwada, Emily McGirr, Catherine Saget and Steven Tobin (Section I)
Sameer Khatiwada and Raymond Torres (Section II)
Iyanatul Islam, Emily McGirr, Steven Tobin and Raymond Torres (Section III)
Emily McGirr, Steven Tobin and Raymond Torres (Section IV)
Matthieu Charpe, Ekkehard Ernst, Emily McGirr and Steven Tobin (Section V)
Raymond Torres, Director of the Institute, edited and coordinated the report.
*An earlier version of this report was presented at the ILO Committee on Employment and Social Policy on
17 March 2009, and at the ILO High-level Tripartite Meeting on the Current Global Financial and Economic
Crisis on 23 March 2009.
I
The Financial and Economic Crisis: A Decent Work Response
Preface
Juan Somavia
Director-General
In early 2009, a global jobs catastrophe is in the making. On current trends,
global unemployment and the number of working poor are forecasted to
rise significantly in the course of this year. In addition, some 90 million
people will enter the labour market worldwide in 2009-10.
Before this crisis, we know only too well there was already a crisis. Subdued
growth in productive employment, relative to the rise in output, and scant
social protection, coupled with rising income inequality, featured together
with excessive confidence in self regulating markets. Middle classes were
weakened. Young persons, migrant workers and notably women workers
in precarious and informal jobs are particularly exposed to the hardships
of the current downturn.
Bold and swift action is required to reactivate the world economy in order
to avoid a social recession from occurring.
The ILO message is to place employment and social protection at the cen-
tre of extraordinary fiscal stimulus measures. This will both protect the
vulnerable and reactivate investment and demand in the economy.
This study reviews the current responses to the crisis in over 40 countries.
It finds scope to significantly increase funding for protecting persons and
supporting employment and enterprises.
The ILO calls for a Global Jobs Pact, nationally and globally, to define and
implement, based on dialogue with the social partners, employment and
social protection measures best adapted to each national situation, and in
ways commensurate with the scale of the crisis.
III
These proposals have been discussed by the ILO Governing Body in

March 2009 and are to be further elaborated at the International Labour
Conference in June 2009.
The ILO will combine its expertise with tripartite dialogue to develop
policy responses to the global financial, economic and jobs crisis.
This study provides a solid contribution to the global debate on crisis

responses, based on an examination of the facts, analysis and concrete pol-
icy proposals. Its findings will also be useful to reflect on rebuilding policy
agendas as we move out of the crisis. This means placing decent work at
the heart of economic and social policies to build a fair and sustainable
globalization providing opportunities to all.
Executive summary
The global crisis is deepening

The world economy has been significantly affected by the financial crisis
and prospects are the worst since the Great Depression. Already, the larg-
est developed countries, notably those where the crisis originated, have
entered into recession. Spill over to other countries was initially small, but
several emerging economies are now being hit hard assumptions about a
decoupling of these economies have indeed proved wrong.
Developing countries too are facing the effects of the crisis, which will
disrupt and in some cases reverse the achievement of Millennium
Development Goals, including decent work for all. This is of particular
concern given that, even in the pre-crisis period, growth patterns in certain
regions, notably in Africa, led to only negligible reductions in poverty.
Decent living and working conditions still remain out of reach for large
numbers of people.
Importantly, the crisis is spreading throughout the real economy by means

of three mutually-reinforcing transmission channels, namely: the limited
availability of credit for working capital, trade finance and viable invest-
ments in the real economy (the credit crunch); cautious spending decisions,
leading to lower output, employment and prices, in turn affecting confi-
dence among consumers and investors (the vicious cycle of depression);
and international trade and investment linkages and remittance flows (the
globalization channel).
... and entails a risk of a prolonged labour market recession ...

The consequences of the crisis on labour markets have been visible since
2008, especially in the United States where the crisis originated. At the
global level, after four years of consecutive declines, the number of unem-
ployed increased in 2008 by 14 million. As the crisis continues to spread
V
and job losses mount, worldwide unemployment could increase by at least

38 million by the end of this year.
The bleak labour market picture affects certain groups disproportionately

notably women, migrant workers and youth. In some countries, the finan-
cial, construction and automobile sectors are suffering the most. In general,
export-oriented sectors, which in many developing countries are major
providers of formal jobs, notably for women, face the prospect of rapidly
shrinking world markets. And the impact of the crisis on labour markets
will go beyond job losses. In particular, the incidence of informal employ-
ment and working poverty will rise, aggravating pre-existing challenges.
The biggest risk is of a prolonged labour market recession. Lessons from

past financial crises show that the labour market tends to recover only four
to five years after the economic recovery (which is not expected before the
end of 2009). This is because massive rises in long-term unemployment and
greater labour market informalization exacerbated by return migrants
and large-scale reverse migration from urban to rural areas are very dif-
ficult to reverse. If these trends take root, the negative effects of the crisis
will be long-lasting, thus yielding significant social hardship and depriving
the economy of valuable resources.
... threatening social stability

Social hardship will be heightened in developing countries where social
protection is often limited. But even in emerging economies and a number
of developed countries, most new jobseekers do not receive unemployment
benefits. The result is that millions of workers will be left without adequate
support.
Pension systems are under severe strain as a result of the collapse of capital
markets. Private pension funds have recorded substantial losses on their invest-
ments. Though the trends are often presented in overly technical language,
one thing is clear: pension entitlements for workers who rely on such funds
have been cut by over 20 per cent, on average. In some countries, even retirees
VI
Executive summary
have been left with the prospect of lower pension benefits. Importantly, well-
designed public pension systems have been much less affected than private
funds. This has motivated a policy shift in the stance of certain international
organizations, which now advocate greater focus on more stable, security-
oriented public pension systems. This is a much-welcomed development,
though the damage has already been done and will be difficult to repair.
Finally, there is concern that the crisis is affecting all groups, while the gains
of the pre-crisis expansionary period had been distributed unequally.
In short, a social crisis is looming large and can only be averted if adequate
action is taken promptly.
Countries have attempted to address the crisis through

the adoption of massive financial rescue measures and the announcement
of fiscal stimulus packages
Much of the focus to date has been on stabilizing financial markets and
attempts to restore credit liquidity. At the same time, to stimulate the econ-
omy many countries have announced fiscal rescue packages cutting taxes
and boosting spending of varying sizes. Several countries have also taken
some action to mitigate the labour market and social consequences of the
crisis. However, the amount committed for financial rescue measures has
been for the most part far in excess of fiscal tools deployed to stimulate
demand, output and employment.
... but the plans have not succeeded so far ...

It is commendable that countries have reacted so quickly, given the time lag
for these packages to reach the real economy. Nevertheless, the impact of
the measures has been limited to date. This is because, as evidenced from
the over 40 rescue and stimulus plans assessed for the purposes of this paper,
the transmission mechanisms through which the crisis is spreading have
not been fully addressed. And the measures have often failed to tackle the
structural imbalances that lie behind the crisis.
VII
because the credit system has not been revived

First, rescue measures to banks, though of unprecedented magnitude, have
not revived bank credit. To avert the risk of systemic collapse, developed
countries have rescued financial institutions through capital injections,
credit guarantees and sometimes outright assumption of bad loans. Indeed,
protecting banks solvency and restoring the availability of credit to enter-
prises and households was rightly regarded as a pre-condition to avoid a
total collapse of the financial system, with unpredictable consequences for
the real economy. However, access to bank credit remains limited.
... fiscal packages do not focus sufficiently on decent work

and are not coordinated, thus failing to boost the economy
Second, fiscal stimulus measures announced by governments are generally
on a much lower scale than rescue support to banks. In addition, they
mostly do not focus sufficiently on employment and social protection.
Only half of the countries examined in this report have announced labour
market initiatives; infrastructure programmes do not adequately take into
account the need to reinforce the existing capacity of businesses and skills
supply so that part of the infrastructure spending may result in higher
prices, rather than higher production and jobs; and some tax cuts will end
in higher savings rather than higher demand, output and jobs. The meas-
ures, moreover, involve only limited social dialogue with employers and
unions and lack coordination across countries.
Lack of international coordination obviously diminishes the overall effect of

the stimulus measures. But it also makes each individual country reluctant
to move faster than its trading partners, given the international linkages. As
a result, practical implementation of the fiscal packages may be postponed
further, aggravating the vicious cycle of depression.
VIII
Executive summary
world markets face the risk of inward-looking solutions,
competitive devaluations and wage deflation
Third, world markets are affected by the credit crunch (which dries up trade
finance available to enterprises) and face the risk of inward-looking solu-
tions and protectionist responses. The repercussions for developing coun-
tries, which rely so heavily on world markets, would be especially acute.
This is why the multilateral system should remain vigilant vis--vis the
mounting pressure to support strategic sectors like automobiles. Likewise,
attempts to overcome the crisis through competitive currency devaluations
would be counterproductive.
Generalized wage deflation to protect individual economies would aggravate

the crisis even more than a wave of competitive devaluations. Indeed, wage
deflation would deprive the world economy from much-needed demand
and would also seriously undermine confidence. Open market policies,
which are so crucial to the recovery, would also face a risk of backlash if
workers perceive the measures as unfair.
little attention has been devoted to the development dimension

Fourth, inadequate attention has been given to the development perspec-
tive. The social impacts of the crisis in developing countries are exacerbated
by the fact that the majority of workers and small businesses do not have
basic social security. It is expected that between 40 and 50 per cent of men
and women globally will not be able to earn enough to lift themselves and
their families above the two US dollars a day poverty line in 2009.
Moreover, many developing countries lack the capacity to undertake mas-

sive public investments. Already a number of countries are facing sizeable
fiscal and current account deficits on the heels of the food and fuel price
crisis of mid-2008. If the gap between countries widens even further as a
result of varying capacities to respond to the crisis, global imbalances and
inequalities will intensify.
IX
Traditional International Monetary Fund (IMF) packages to support coun-

tries that undergo balance of payments crises are simply not adapted to the
situation. Such packages were based on an approach that assumed coun-
tries faced local crises, for which the countries involved themselves had the
main responsibility. The current crisis, however, is global and originates in
the developed world. A multiplication of traditional rescue packages would
further aggravate the decline in world demand and perpetuate the global
crisis. This is why a new mechanism, which would coexist with IMF rescue
packages, rather than replace it, is needed.
and the structural causes of the crisis have not been tackled
Fifth, the stimulus measures have, so far, not been deployed with a view to
ensuring that global growth is more equitable and sustainable in the medi-
um to longer term. Global imbalances, decent work deficits and inequalities
have been a significant contributor to the crisis. Likewise, reflecting poorly
regulated financial markets, the real economy has been subject to pressure
to raise returns in the short run, sometimes to the detriment of workers
incomes and the long-term interests of sustainable enterprises. It is vital to
tackle the root causes of the crisis to support the recovery, reduce the risk
of another major systemic crisis and promote a sense of fairness. Reverting
to the status quo is not an option.
What is needed is a global jobs pact

Moving ahead with the Decent Work Agenda is crucial to supporting the
economic recovery, averting the labour market and social crises and pro-
moting social cohesion on the measures. In the global crisis context, this
is best done through a global jobs pact.
A global approach is needed because the measures, to be effective, need to

avoid beggar-thy-neighbour solutions to a crisis which is global in nature.
The emphasis on jobs comes from evidence provided in this paper that
it will not be possible to reactivate the economy in a sustainable manner
unless greater emphasis is placed on decent and productive employment
X
Executive summary
for women and men, well-designed social protection and workers rights.
Measures are best implemented through social dialogue in countries, but
greater cooperation at the international level can also have mutually-rein-
forcing benefits thus the need for a pact.
The global jobs pact would build on the ILOs Global Employment Agenda
and the November 2008 statement by the Officers of the ILO Governing
Body. In essence, the global jobs pact seeks to support economic recov-
ery through decent-work friendly policies, reduce the risk that the crisis
spreads further across countries and pave the way for a more sustainable,
fairer globalization. This is how.
To restore credit, governments could consider:
Making financial support, such as governments assumption of toxic

assets, conditional on: beneficiary banks providing new credit for viable
projects of businesses and individuals; and limitations to managers pay
and dividend policy, so that government support does not miss the target
of reactivating credit.
Providing credit lines and direct access to government loans to small

businesses (important drivers of innovation and employment growth)
so they can maintain operations (and seize potential new opportunities)
until demand is restored.
Fiscal stimulus packages would provide a much stronger boost to the

economy and jobs, while also proving cheaper than current packages, if
the following conditions were met:
Ensuring that infrastructure, construction and housing projects leverage

capacity among existing businesses by: giving small and medium-sized
enterprises (SMEs) support to take advantage of new opportunities;
ensuring that workers have the skills to respond to new requirements;
and promoting the rural and agricultural dimensions of the projects,
which are crucial for developing countries as they would help boost
XI
domestic economic and job dynamism and attenuate the looming food
crisis.
Given the lags in launching infrastructure, construction and housing

projects, it would be helpful to: provide support to existing jobs in viable
firms through shorter working hours, partial unemployment benefits and
training; reduce labour taxes on low-wage employment; and enhance
social protection through well-designed programmes that support aggre-
gate demand and are consistent with work incentives. This could include
conditional cash transfers to enhance access to education and health serv-
ices, and unconditional transfers in countries where poverty is widespread
and administrative capacity is limited. More structural measures are also
needed however, so that social protection becomes broad-based.
For job losers and new entrants who do not find jobs, the following
measures proved useful in earlier crises: putting in place at least minimal
unemployment benefits or employment guarantees for those not able to
access income support (experience from the Asian crisis shows successful
performers overcame the crisis partly through these new, cost-effective
schemes); active labour market programmes and training administered
through solid, well-resourced public employment services (evidence shows
that these services, if well functioning, are crucial at times of crisis and are
cost-effective relative to other measures); and specific programmes and
approaches to vulnerable groups, notably women, youth, who could also
be encouraged to stay longer in education, and migrant workers.
To the extent that specific industrial sectors need support, such sup-
port should be: subject to strict social and environmental criteria; and
targeted and coordinated globally, consistent with international trade
agreements.
Enhance fiscal space, administrative capacity and technical support to

developing countries in the event of global crises, possibly through the
creation of a global jobs fund. Unlike the IMF rescue packages, this
fund would be anti-cyclical. The global jobs fund would not be subject
XII
Executive summary
to cuts in social spending and wage deflation (which not only depress
the domestic economy but also affect neighbouring countries, exerting
further downward pressure on world demand). Recipient countries could
take advantage of ILO expertise in developing the various dimensions of
the global jobs pact. They would engage social partners in the design of
the measures. Repayment of the funds loans, possibly larger in scale than
traditional rescue loans, would be made easier because the system is anti-
cyclical in nature, and thus supports the global recovery, and is designed
to promote domestic economic capacity.
Avoiding wage deflation through coordinated systems of collective bar-

gaining and protecting workers rights would not only provide adequate
support to victims of the crisis, but would also ensure a timely demand
stimulus and pave the way for a more sustainable economy. As such, the
global jobs pact would also comprise the following measures:
Strengthening respect for core workers rights, as this would be both

socially desirable and economically efficient to achieve more balanced
income developments.
Building the capacity of social partners for dialogue and reaching agree-
ments at various levels so that wages for the economy as a whole grow in
line with productivity developments (and not below them as was the case
over the past two decades).
Guaranteeing the purchasing power of minimum wages, so that they act

as an anchor to all wages.
Avoiding wage deflation to support global demand and reduce trade ten-
sions.
XIII
Nearly 90 million net new jobs

are needed to stabilise unemployment in 2009-10
According to demographic projections, and on the assumption of constant

participation rates, the size of the labour force will rise by nearly 90 million
people during 2009-10. The challenge for the world economy is to create
enough jobs for these people.
It is therefore crucial to implement a coherent, job-oriented recovery strate-

gy as soon as possible. If crisis responses were coordinated and implemented
over the next 3 months, it would become possible to stabilise unemploy-
ment and resume the job recovery as from early 2010. If the measures were
delayed further, by an additional three months, the recovery would only
start as from early 2011.
Global policy coherence for shared prosperity and development:

Now is the time to enhance cooperation among key international organi-
zations. This is key to speed up the recovery. Indeed, inward-looking
solutions would be counterproductive. More fundamentally, the crisis
is global and multi-faceted, so no organization or country is equipped
to address all its dimensions. This is why the ILO has reaffirmed the
importance of fostering greater cooperation among national govern-
ments, international organizations, and other stakeholders in support
of a stronger, cleaner and fairer economy. International partners can
increase coherence between financial, trade, social, environmental and
development goals. This also implies a reprioritization between these
goals, to:
ensure that the financial system serves the real economy and social
development, through a deep reform of the financial architecture and the
implementation of executive compensation packages that are reasonable
and geared towards real performance;
XIV
Executive summary
re-balance the globalization process, as stated in the ILO Declaration on
Social Justice for a Fair Globalization (the Social Justice Declaration),
and in particular address the decent work gaps, and excessive income
inequalities as well as the growing incidence of informal and non-
standard employment that developed during the pre-crisis period;
pave the way for a green economy, given that future spending will
be limited by the need for governments to tighten budgets so as to
repay mounting public debt after the economy recovers. Importantly,
green technologies tend to be more job-rich than their CO2-intensive
counterparts hence the Green Jobs agenda; and
ensure that official development aid is not affected by the crisis and
establish a new mechanism such as the global jobs fund, to complement
existing measures and support adjustment of emerging and developing
countries at times of crisis.
Debates at the G20 could offer an opportunity to discuss these issues,

as well as the global jobs pact. In addition an exchange of good practices
could take place at the ILO, so that countries benefit from each others
experiences and take advantage of the expertise developed at the ILO.
In sum, responses to the crisis must not be piecemeal in nature and rolled
out temporarily, only to revert back to business as usual as soon as
possible. The challenge now is to respond to the current crisis by putting
in place measures that pave the way for a better pattern of growth and
development.
XV
XVI
Tables of Contents

Page
Executive summary V
Introduction 1
I. Crisis spreads worldwide and entails risk of prolonged social crisis 3
II. International and country responses to the crisis 21
III. Decent Work as a cornerstone of the recovery: A global jobs pact 37
IV. Improving global policy coherence for more balanced growth and development 59
V. Assessing the effects of the global jobs pact on the recovery 69
XVII
List of tables, figures and boxes
Page
Tables
Table 1 World Economic Outlook 4
Table 2 Crisis resolution instruments for select countries 22
Table 3 Monetary policy interest rate changes 26
Table 4 Examples of labour market initiatives in response to the crisis 31
Table 5 Existing stimulus measures as a percentage of GDP 70
XVIII
Page
Figures
Figure 1 Monthly change in industrial production (percentage) 7
Figure 2 Employment declines in the last twelve months in the G7 (000s) 9
Figure 3 Projected increase in vulnerable employment and working poverty
(millions, change from 2007 to 2009) 12
Figure 4 Social expenditures as a percentage of GDP, most recent year available 15
Figure 5 Share of unemployed workers NOT receiving unemployment benefits 16
Figure 6 Pension fund returns (real), for selected countries, January-October 2008 (percentages) 18
Figure 7 IMF assistance as percentage of GDP 22
Figure 8 Fiscal package as a percentage of GDP in 2009 27
Figure 9 Composition of spending as a percentage of total for selected countries 29
Figure 10 Comparison between fiscal and financial rescue efforts as a percentage of GDP 34
Figure 11 Percentage of lenders tightening standards, by size of enterprise seeking loans 34
Figure 12 Estimated employment effects of different fiscal measures 43
Figure 13 Household debt and income inequality in some OECD countries, 2005 62
Figure 14 Estimated labour market and social developments, 2009-2010 69
Figure 15 Decomposition of rescue packages 71
Figure 16 Recovery from the crisis depends on the timing of efforts 72
Boxes
Box 1 The crisis: causes and transmission mechanisms 4
Box 2 Impact of the crisis on womens employment 11
Box 3 Unstable food prices and impact on the poor 13
Box 4 Aftermath of banking crises and employment recovery after recessions 14
Box 5 ILOs Small Enterprise Development Programme 41
Box 6 Enhancing public employment services and active labour market programmes 46
Box 7 The ILOs Employment-Intensive Investment Programme 47
Box 8 Conditional cash transfers 49
Box 9 Relevance of ILO instruments in the crisis context 53
Box 10 Lessons from social dialogue in previous crises 55
Box 11 Green investments and job creation as a response to the crisis: some examples 64
Box 12 Macroeconomic stabilization in the wake of financial/economic crisis 67
XIX
Introduction
What started as a mortgage crisis in the United States in the latter half of
2007 has now developed into a global economic crisis, bringing with it
unprecedented labour market and social challenges across advanced, emerg-
ing and developing countries.
The objective of this paper is to provide evidence-based policy analysis

of how ILO members can best mitigate the challenges facing enterprises
and workers. The first section of the paper reviews recent developments,
discusses the origins of the crisis and how the damaging effects have spread
from developed countries to other parts of the world, and from the financial
economy to the real economy, employment and society.
The second section examines current international and national responses

to the crisis, including financial and fiscal policy measures, labour mar-
ket initiatives and social dialogue. The aim of this section is to assess the
breadth and depth of the responses and identify potential gaps.
In building upon the lessons learned and measures taken to date, the third
section of the paper examines the key ingredients to overcoming the crisis,
notably the need for a global jobs pact and the role of the ILO in address-
ing the challenges.
Section four discusses how best to respond to the crisis through measures
that support a recovery while meeting the longer term goal of achieving a
more sustainable and equitable pattern of development, as provided in the
Social Justice Declaration.
The last section assesses the effects of the global jobs pact on the recovery,
highlighting the importance of coordinated, timely and employment-ori-
ented efforts to tackle the global economic and jobs crisis.
1
I. Crisis spreads worldwide
and entails risk of prolonged social crisis
The largest developed countries, notably those where the crisis originated,
have already entered into recession
The global economy is experiencing the worst economic crisis since the
Great Depression. What began as a financial crisis when the housing market
in the United States turned sour has now expanded into a global melt-
down, wiping away trillions of dollars of financial wealth, putting the real
economy at grave risk of prolonged recession, and causing significant job
losses and widespread social hardship.
The IMF predicts that world output will decline by 0.6 per cent this year
the lowest rate since the Second World War and revised downward, sig-
nificantly, compared to their January 2009 estimates of 0.5 per cent positive
growth (table 1). In comparison, in 2007 and 2008, world output grew by
over 5 per cent and 3.4 per cent, respectively. The European Union (EU),
Japan, the United States and other large developed economies have already
entered into recession or are on the brink of doing so. And private-sector
analysts such as the Deutsche Bank paint an even more dire scenario for
2009.
3
Table 1 World Economic Outlook1

IMF Deutsche Bank UNDESA
2008 2009 2009 2009
World Output 3.4 -0.6 -1.2 1.0
United States 1.1 -2.6 -3.9 -0.9

Euro Area 1.0 -3.2 -3.0 -0.7
Japan -0.3 -5.0 -7.6 -0.3
Brazil 5.8 1.8 -1.0 2.9
China 9.0 6.7 7.0 8.4
India 7.3 5.1 4.6 7.0
Russia 6.2 -0.7 -2.4 4.8
South Africa : : : 2.5
Africa 5.2 3.4 : 4.1

ASEAN-5 5.4 2.7 : :
Central and Eastern Europe 3.2 -0.4 : :
Western Hemisphere 4.6 1.1 : :
Middle east 6.1 3.9 : :
1
UNDESA forecasts are from January 2009, IMF and Deutsche Bank forecasts from March 2009.
Source: IMF, Deutsche Bank and UNDESA.
and the crisis is now spreading to the rest of the world

Spill over to emerging and developing economies was initially small, but
the crisis has now spread worldwide and from financial markets to the real
economy through a number of transmission mechanisms (box 1).
Box 1 The crisis: causes and transmission mechanisms
The crisis has been brought about by a combination of inappropriate financial regula-
tions, excessive risk-taking of certain financial intermediaries and inefficient remune-
ration practices of bank managers and traders. But it is the interaction between these
financial factors and global imbalances that lies at the heart of the crisis:
Since the early 1990s, significant savings-investment imbalances built up. This is
partly the result of export-oriented growth strategies in some countries, and insuffi-
cient savings in others. Lack of exchange rate adjustments contributed as well.
Within countries, income inequalities grew significantly since the early 1990s.
Stagnating wages and incomes for a majority of workers in some countries spurred
demand for credit to sustain consumption possibilities and housing investment deci-
sions. Interestingly, a rise in the share of over-indebted households has been observed
in all the countries where income inequalities have increased.
4
I Crisis spreads worldwide and entails risk of prolonged social crisis
This was made possible by lightly regulated financial practices that allowed excessive
debt accumulation and focused on short-term returns (because of skewed compensa-
tion packages) rather than long-term investments in the real economy. When housing
markets reached a turning point and interest rates rose, over-leveraged low-income
households defaulted on payments and foreclosures rose significantly. As the value
of the assets plummeted, banks had to finance foreclosures, and effectively stopped
lending to each other, causing liquidity to dry up substantially.1 In short, financial
markets have tended to operate to the detriment of labour market stability and sus-
tainable enterprises.
The crisis then spread to the real economy, and beyond developed countries, through
three channels.
First, the crisis spread through the financial system via the process of securitization of
toxic assets. Direct exposure to toxic assets led to some localized bank failures, but more
broadly, inter-bank credit was affected and as a result, the volume of new credit available
to the real economy declined. Even businesses with a long record of creditworthiness
have had credit lines cut and have had difficulty selling their bonds. This abrupt freezing
up of the normal credit lines needed for trade, coupled with the inability of companies
to raise capital for seemingly profitable business opportunities and investment plans,
created the so-called credit crunch. Second, over and above the credit crunch, the
crisis is gaining its own dynamics in the real economy through the confidence channel.
Consumers and investors lack confidence and postpone their spending decisions. This
affects firms prospects and leads to job losses, further aggravating confidence.
Third, the crisis is spreading worldwide through international linkages, so even countries
with relatively healthy financial systems are being affected:
World trade is estimated to contract by 9 per cent in 2009 after growing at an average
annual rate of 7.8 per cent for the last three years.2 This has dire consequences for
economies around the world, especially the export-led economies of Asia and Latin
America. Moreover, global trade activity is also negatively affected by the scarcity of
trade financing.
Some trade prices, notably for oil and other commodities, declined significantly as
a result of the recession. As such, oil and gas producers like Mexico, Middle Eastern
countries, the Russian Federation and the Bolivarian Republic of Venezuela face a
sudden reduction of export revenues. Likewise, declines in prices of metals such as
nickel, lead and zinc have deeply affected countries such as Australia, Brazil and South
Africa. Lower commodity prices though improving the terms of trade for importing
countries have not outweighed the other negative forces at work.
Foreign direct investment and other private capital flows are affected as well. In parti-
cular, private capital flows to emerging economies are expected to fall to $165 billion
in 2009. From the high of $929 billion in 2007, this represents an unprecedented
drop of 82 per cent.3 This has implications for development, since one third of growth
in emerging countries comes from investment.4 Reduced flows of capital may have
a dramatic effect on countries with large current account deficits and with a limited
ability to borrow from abroad.
5
Box 1 The crisis: causes and transmission mechanisms
It is likely that, for the first time in decades, remittances will fall, impacting the
economic security of households around the globe. Remittances represent more than
10 per cent of GDP in over twenty countries, and in some cases as much as 24 per
cent.5 For many countries, remittances are larger than the amount received in Official
Development Assistance. The negative impact of falling remittances on the developing
world could be in the order of $3 billion per year.6
Although donor countries have committed not to reduce development aid in several
international forums, this commitment might eventually come under pressure in view
of declining outputs in major industrialized countries
1
This issue is discussed in detail in ILO: A global policy package to address the global crisis, Policy Brief,
International Institute for Labour Studies (IILS), Geneva, 2008.
2
World Trade Organization: Annual Report, 2009.
3
Institute of International Finance: Capital Flows to Emerging Market Economies, 27 January 2009.
4
UNCTAD: Trade and development report: Commodity prices, capital flows and the financing
of investment, 2008.
5
World Bank: Migration and Development Brief, 29 November 2007.
6
Under the assumption that remittances fall 2 per cent globally in line with the estimated
decline in Latin America (Inter-American Development Bank: IADB estimates of 2008 remittance flows
to Latin America and the Caribbean, October 2008).
Large emerging economies are being hit hard by the crisis assumptions of
a decoupling of these economies have proved wrong. During the second
half of 2008, industrial output slowed significantly and even contracted in
some large emerging economies (figure 1).
Other emerging and developing countries are also being affected. There is
a risk that progress on development will be seriously disrupted and in some
cases reversed. This could compromise the attainment of the Millennium
Development Goals, notably full and productive employment and decent
work for all, including women and young people. Decent living and work-
ing conditions still remain out of reach for a large number of people.
6
-20
-15
-10
-5
0
5
10
15
20
25
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
Jan 07 Jan 07
Feb 07 Feb 07
Mar 07 Mar 07
Apr 07 Apr 07
May 07 May 07
Source: World Bank.

Jun 07 Jun 07
Jul 07 Jul 07
Aug 07 Aug 07
Sep 07 Sep 07
Oct 07 Oct 07
Nov 07 Nov 07
Dec 07 Dec 07
Jan 08 Jan 08
Feb 08 Feb 08
Mar 08 Mar 08
Apr 08 Apr 08
Figure 1 Monthly change in industrial production (percentage)
May 08 May 08
Jun 08 Jun 08
Jul 08 Jul 08
Aug 08 Aug 08
Sep 08 Sep 08
Oct 08 Oct 08
Nov 08 Nov 08
Brazil
Dec 08 Dec 08
China
E.U.
India
Jan 09 Jan 09
Russia
South Africa
U.S.
Japan
7
with severe impacts on certain sectors

Certain sectors are being disproportionately affected by the crisis. The
effects on financial services and construction the sectors at the epicentre
of the crisis in developed countries have been immediate and profound.1
As the crisis spread, those sectors most affected by the credit squeeze and
confidence effects, like automobile production, were then hit.2 Export-
oriented activities, tourism and commodity sectors are now suffering from
rapidly falling world demand and declining prices. The impact on devel-
oping economies that rely heavily on a narrow, commodity-based export
sector, is dramatic.
Global unemployment rose in 2008 and employment levels

have declined significantly in advanced economies
As growth rates declined in 2008, the effects on the labour market started to
be felt. After four years of consecutive declines, the global unemployment
rate increased to 6.0 per cent in 2008, up from 5.7 per cent in 2007, and
the number of unemployed rose by 14 million.3 The impact was immedi-
ate and particularly severe in the United States, where employment losses
started in early 2008 and have continued to mount since. Similar trends
are present in Japan (figure 2). In European countries, job losses have been
contained to some extent due to recourse to shorter hours or partial unem-
ployment benefits. However, even there, recent indicators suggest a reversal
of employment growth and significant increases in unemployment.
with already visible impacts on emerging and developing countries ...

In other countries, the job losses stemming from the crisis have only just
begun and so the full extent of the impacts on labour markets may not be
felt for some time. Nevertheless, there are early and clear indications that
the crisis is impacting labour market and social conditions in emerging
economies and developing countries:
1
See GB.304/STM/2/2 and Escudero, forthcoming, 2009.
2
Two-thirds of cars in the world are purchased with credit. However, it is important to note that
even before the current crisis, the automotive sector was facing a number of challenges, including decreased
demand for relatively high-profit vehicles due to volatile fuel prices and geographical relocation of some
operations to areas with low labour costs. See GB.304/STM/2/2.
3
ILO: Global Employment Trends for Women, March 2009.
8
Figure 2 Employment declines in the last twelve months in the G7 (000s)
200
107 115
0
-75
-200 -141
-207
-290
-400
-800
-1600
-3200
-4,100
-6400
US Japan Canada France UK Germany Italy
1
For the US: Feb. 2008-Feb. 2009 (preliminary); for Canada: Feb. 2008-Feb. 2009;
France: Q4 2007-Q4 2008; Italy: Q1Q4 2008; Germany and Japan: Jan. 2008-Jan. 2009;
UK three months to January 2008-three months to January 2009.
Source: National statistics.
Following job losses in factories on the industrialized eastern coast of

China, more than 20 million workers have reportedly returned to their
residential rural areas.4
During the last quarter of 2008, employment in eight export-oriented

sectors in India (mining, textile and textile garments, metals and metal
products, automobile, gems and jewellery, construction, transport and
information technology) fell by over 3 per cent.5
The South African economy may lose a quarter of a million jobs as a

result of the crisis and this is likely to undermine government plans to
cut the unemployment rate to 14 per cent by 2014.6
Reflecting a sudden deterioration in the economic outlook, Central and

Eastern European countries are experiencing a dramatic reversal of earlier,
hard-won employment gains.
Significant job losses have been recorded in developing countries that

rely heavily on a narrow export base. For instance, in Africa, employment
levels in commodity production and tourism have declined significantly
in recent months.
4
Xinhua, 2008.
5
Chandrasekhar and Ghosh, 2009.
6
Seria and Cohen, 2009.
9
In these countries, job losses will exacerbate challenges of employment

informality and working poverty. In the absence of income support alter-
natives, job losers either move back to rural areas or take up informal jobs
in the urban economy.7 This has started to happen, according to an ILO
report.8 For instance, a reversal in rural-to-urban migration flows has been
noted in China and, in Africa, workers who had formal jobs in export-
oriented sectors have been pushed to the informal economy where they will
earn lower wages. As a result, between 40 and 50 per cent of the worlds
working men and women in 2009 are not expected to earn enough to lift
themselves and their families above the $2 a day per person poverty line.9
and disproportionate effects

on vulnerable groups such as women, youth and migrant workers
Groups that were already in a vulnerable position before the crisis will be
disproportionately affected, while temporary and migrant workers are also
usually not protected by collective bargaining agreements.10 The crisis is
already having differentiated employment and social impacts from a gender
perspective. Many of the job losses to date in advanced economies, especially
the United States, have been in male-dominated sectors such as finance and
construction.11 However, in many developing countries, women are often
in more precarious employment situations.12 In particular, the concentra-
tion of women in export-oriented enterprises in emerging and developing
countries brings a number of acute labour market challenges (box 2).
7
Betcherman and Islam (eds), 2001.
8
ILO Regional Office for Asia and the Pacific: The fallout in Asia: Assessing labour market impacts and
national policy responses to the global financial crisis, prepared for the forum Responding to the Economic
Crisis - Coherent Policies for Growth, Employment and Decent Work in Asia and Pacific, Manila, 18-20
February 2009.
9
ILO: Global Employment Trends, January 2009.
10
The impact on vulnerable groups varies by country and time period under consideration
(see, for example, ILO: Global Employment Trends for Women, March 2009).
11
Of the 2.9 million job losers in the United States in 2008, 2.3 million were male.
12
10
Box 2 Impact of the crisis on womens employment 1
The crisis has already hit major exporting industries dependent on American and
European markets, such as labour-intensive sectors of developing countries. This inclu-
des clothing, footwear and processed foods, as well as micro-circuits and electronic
products. Since women make up the majority of the workforce in these sectors, their
labour market position has worsened considerably.
More generally, women are often regarded as a flexible reserve, to be drawn into the
labour market in upturns and expelled in downturns.2
Women are also over-represented among casual and temporary employment, contract
labour and home workers. They also tend to earn lower wages than their male counter-
parts and the crisis is likely to worsen the situation in this regard.
1
King-Dejardin and Owens, forthcoming 2009.
2
Studies of economic recessions in several developed countries in Asia, Europe, and North America show that
womens employment moved pro-cyclically, and significantly more pro-cyclically than mens (Rubery (ed.),
1988). In addition, womens integration into the workforce in the 1980s was generally associated with their
providing forms of labour market flexibility (Standing, 1989).
Youth are facing considerable difficulties in the labour market.13 This comes
on top of an already fragile situation for youth in both developed and devel-
oping countries. Even during the previous period of economic expansion,
most economies fell short of creating enough decent and productive jobs
for young people. Between 1997 and 2007, the number of unemployed
youth rose by 8 million.14 Moreover, a lack of decent work opportunities at
an early age may permanently compromise the future employment pros-
pects of youth. The relative disadvantage of young workers is even more
pronounced in developing countries.15
As employment losses mount, migrant workers are particularly vulnerable

and often among the hardest hit, due in part to their low bargaining posi-
tion (especially among newly arrived migrant workers). Evidence from past
crises reveals that among migrant workers, women and those in irregu-
lar status are the most vulnerable to job loss. For those able to maintain
employment, working conditions may seriously deteriorate.
13
For example, in Spain, during the fourth quarter of 2008, employment decreased for most age groups,
but the drop, at 10 per cent, was particularly severe for 20-24 year olds.
14
ILO: Global Employment Trends for Youth, October 2008.
15
ibid.
11
The prospects are for a continued deterioration in labour market

and social conditions
The global number of unemployed persons could rise by 38 million in
2009, bringing the global unemployment rate above 7 per cent.16 Against
the backdrop of the IMFs recent downward revision, this estimate is likely
to represent a lower bound.
Likewise, vulnerable employment, as measured by own-account workers

and contributing family workers, is expected to rise by some 25 million
(figure 3, Panel A). The majority of the increase is expected to occur in
South Asia and Sub-Saharan Africa.
Figure 3 Projected increase in vulnerable employment and working poverty

(millions, change from 2007 to 2009)
Panel A. Vulnerable Employment

South Asia 19
Sub-Saharan Africa 12
S.E. Asia & Pacific 4
North Africa 3
Middle East 1
Cent., S.E. Europe & CIS 0
Latin America & Caribbean -2
East Asia -12
-20 -10 0 10 20 30 40
Panel B. Working Poor (<$2/day)

South Asia 33
Sub-Saharan Africa 20
Latin America & Caribbean 15
S.E. Asia & Pacific 4
Middle East 3
North Africa 2
Cent., S.E. Europe & CIS 2
East Asia -2
-20 -10 0 10 20 30 40
Source: ILO: Global Employment Trends, 2009.
16
12
As was the case in previous crises, this could generate substantial downward
pressure on informal-economy wages, which before the current crisis were
already declining and are substantially lower than for regular workers.17
This is also likely to lead to a reduction in the number of days worked.18
This combination of factors will reduce incomes at the household level and
erode purchasing power, leading to an increase in the proportion of work-
ing poor in most developing economies (figure 3, Panel B). Based upon
a threshold of $2 per day, over 2008 and 2009 the incidence of working
poverty is expected to rise across almost all developing regions. This will
add over 75 million people to the working poor, with most of the increase
occurring in South Asia and Sub-Saharan Africa.
Box 3 Unstable food prices and impact on the poor
The rise in food prices between 2005 and 2008 is estimated to have increased the share
of the population of East Asia, the Middle East, and South Asia living in extreme poverty
by more than 1 percentage point. The impact on Africa was relatively lower because food
prices increased somewhat less than in other regions. As the poor in developing countries
spend 50 percent of their incomes or more on food, the increase in food prices had a
disproportionate impact on them. Since July 2008, prices of all commodities, including
food items, have fallen sharply mainly reflecting declining world demand. However,
food prices remain well above the levels reached in the 1990s.1
300
Oil
250
Dairy
200
150 Food
100 Meat
50
0
Jan 2000
Jan 2001
Jan 2002
Jan 2003
Jan 2004
Jan 2005
Jan 2006
Jan 2007
Jan 2008
Jan 2009
1
ILO: World of Work Report. Income Inequalities in the Age of Financial Globalization, IILS,
Geneva, 2008.
Source: Food and Agriculture Organization of the United Nations (FAO), February 2009.
17
ILO: World of Work Report. Income Inequalities in the Age of Financial Globalization, IILS, Geneva, 2008.
18
Betcherman and Islam (eds): Op.cit.
13
Rising working poverty will compound the effects that the increase in food
prices has had on the poor in developing countries (box 3). And while
prices have fallen recently, given their recent volatility, there is a risk that
when demand for food commodities recovers, the challenges associated
with poverty will intensify.
entailing a risk of prolonged labour market recession

Previous crises show that it takes much longer to return to pre-crisis
employment levels than to restore economic growth with the impact from
banking-related crises often being more severe and prolonged (box 4).
Box 4 Aftermath of banking crises and employment recovery after recessions
Banking crises typically have long-lasting effects on employment.1 Earlier crises caused,
on average, a drop in GDP for approximately two years and increases in unemployment
for a much longer period 4 to 5 years. Furthermore, as growth of government reve-
nues weakens significantly in the year of a crisis and declines in the following years, the
real value of government debt tends to surge, rising an average of 86 per cent. Thus,
the fiscal consequences of banking crises reach beyond the immediate sector-specific
bailout costs.
The figure below shows the duration of the last two recessions in the United States (1991
and 2001). Both recessions lasted eight months (according to the National Bureau of
Economic Research), but the job market recovery took 30 months in the case of the
1991 recession and 48 months in the 2001 recession. In other words, not only does it
take much longer for the job market to recover in response to a recession, but the time
it takes for such recovery to materialize seems to have increased in recent years.
Duration of output recovery and job market recovery after the 1991 and 2001
US recessions (in months)
60
1991 2001
50
40
30
20
10
0
Output Job market recovery
1
See Reinhart and Rogoff, 2008; and Reinhart and Rogoff 2008b.
Source: J. Irons, 2009.
14
Figure 4 Social expenditures as a percentage of GDP, most recent year available1
Advanced economies 14.2
Central & Eastern Europe and Former

11.5
Soviet Republics
Northern Africa 6.4
Latin America & the Caribbean 4.5
Sub-Saharan Africa 2.8
Middle East 2.2
Asia & the Pacific 2.2
0 4 8 12 16
1
Social expenditures (consolidated central government) are defined as transfers to protect the entire population
against certain social risks such as medical services, unemployment compensation, social security pensions, and
social assistance benefits. Social security benefits include sickness and invalidity benefits, maternity allowances,
childrens or family allowances, unemployment benefits, retirement and survivors pensions, and death benefits.
Subsidies, grants, and other social benefits include all unrequited, non repayable transfers on current account to
private and public enterprises; grants to foreign governments, international organizations, and other government
units; and social security, social assistance benefits, and employer social benefits in cash and in kind.
Source: IMF: Government Financial Statistics, 2007.
Depending on social protection coverage, the labour market recession will lead to
significant social hardship ...
Social protection, if well designed, plays a crucial role in alleviating social
hardship in the face of the crisis. Yet, the array of benefits and support
measures available to individuals varies significantly across countries and
regions. Social spending as a share of GDP ranges from as high as 14 per
cent in advanced economies to as low as 2 to 3 per cent in Asia, the Middle
East and Sub-Saharan Africa (figure 4). The reality is that in many emerg-
ing and developing countries, the majority of workers do not contribute to
basic social security coverage, including unemployment benefits.19 This is
due mainly to the fact that most employment is in the informal economy.
19
It is important to note that in many countries - emerging, developing and developed - unemployed
workers often have access to other benefits and support (e.g. social assistance, training, etc.).
15
as millions of workers are left without adequate support

Even where unemployment benefit systems exist in emerging and develop-
ing economies, they are often restricted to urban areas. For example, in
China, close to 5 million unemployed urban workers (57 per cent) were
without unemployment insurance in 2005. Given that over 60 per cent
of total employment in China is in rural areas, the share of unemployed
workers unable to access unemployment benefits is probably closer to 84
per cent (figure 5).
Figure 5 Share of unemployed workers NOT receiving unemployment benefits
China 84%
Japan 77%
United States 59%
Canada 56%
United Kingdom 45%
France 20%
Germany 6%
0% 20% 40% 60% 80% 100%
Note: The figure takes into account unemployment benefits in the form of both insurance (contributory) and
assistance.
Source: IILS estimates based upon of the inverse of the benefit coverage rate using national sources where
available. For China, coverage was calculated as those receiving unemployment benefits as a share of total unem-
ployment (2005; total unemployment is estimated based upon the urban/rural distribution of employment). For
Japan, unemployment benefit recipients (including lump-sum allowances for those 65+, lump-sum allowances
for seasonal or casual workers, and benefits for daily workers) as a share of the number of unemployed (average
over 2006 fiscal year). For US: insured unemployment, week ending December 20, 2008 as a share of unem-
ployed, Dec. 2008. Canada: regular EI benefits as a share of unemployed (Dec. 2008). UK: total claimant
count (the total number of people claiming unemployment related benefits - Jobseekers Allowance), Q4 2008
as a share of unemployed, Dec. 2008. France: Assurance Chmage, Dec. 2008 as share of unemployed (ILO
definition, Q4 2008). Germany: unemployment insurance and unemployment assistance as a share of persons
unemployed (October 2008).
16
In many developed countries, job losers are often not eligible for unem-
ployment benefits. In half of the OECD member countries, 50 per cent or
more of the unemployed do not receive unemployment benefits (though
non-recipients may be entitled to social assistance benefits).20 Even in coun-
tries like France and the United Kingdom, where coverage is greater, many
workers do not receive unemployment benefits (figure 5).
In Canada, Japan, and the United States, where regulations governing access
to such benefits are often much stricter, the share of unemployed workers
not receiving benefits can be well over half. As of March 2009, more than
6 million jobless Americans were not receiving unemployment insurance.
In Japan, about 77 per cent of unemployed persons do not receive

unemployment benefits, however, it is important to recognize that the
employment insurance law was recently revised so that displaced workers
with fixed-term job contracts will qualify to receive jobless benefits if they
have records of unemployment insurance coverage for at least six months
(half the former minimum requirement of one year), and those who have
difficulty finding a new job can receive the benefits longer than before.
The absence of unemployment benefit support is made worse by the

fact that for many individuals social protection is conditional on being
employed. The immediate fall in income resulting from unemployment is
thus worsened by the loss in non-cash benefits such as employer-sponsored
health care. The loss of these benefits can be a particularly severe blow to
middle- and low-income households.
20
The generosity and replacement rates of unemployment benefits - an important consideration - vary
significantly from country to country, and should not be taken as an indication as to the amount of money
spent on non-work assistance. OECD: Employment Outlook, 2008; Stone, Greenstein and Coven, 2007;
and OECD Database on Benefits and Wages.
17
Figure 6 Pension fund returns (real), for selected countries, JanuaryOctober 2008
(percentages)
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
-25.0%
-30.0%
-35.0%
-40.0%
Ireland
United States
Iceland
Hungary
Australia (1)
Canada
Poland
Japan
Netherlands
Belgium (2)
United Kingdom
Norway
Finland (3)
Sweden (2,4)
Spain (2)
Denmark
Germany
Mexico (5)
Italy (2,6)
Turkey
Korea (2)
Greece (2)
1
Official data up to June 2008 then complemented by OECD estimate up to October.
2
2008 data refer to 30 September 2008.
3
Data refer to statutory earnings-related pension plans.
4
Data refer to occupational pension plans only.
5
Data refer to the mandatory and voluntary pension systems.
6
Data refer to new pension funds (contractual and open) instituted after 1993 legislation.
Source: OECD.
and retirement savings are eroded

An immediate consequence of the collapse of stock markets in 2008 has
been the dramatic decline in individual wealth held in pensions.21 According
to the OECD, between January and October of 2008, private pensions
registered losses of nearly 20 per cent representing a value of $4.5 trillion
(figure 6). This has prompted concerns about the adequacy of retirement
savings for many individuals.
In World Bank client countries with funded pension systems, losses in pen-
sion funds range from 8 per cent to 50 per cent.22 In Chile, for example,
the private pension funds that cover 8.3 million workers lost a total of $25
billion in 2008. Traditional pension systems provided by governments on a
pay-as-you-go basis will also be affected by the current downturn, but much
less than private pension funds. Interestingly, in view of the pension crisis,
the World Bank has shifted its stance on this matter and is now advocating
greater focus on government-backed pay-as-you-go systems.23
21
Losses in advanced economies approached 40 per cent in 2008. The MSCI Emerging Market Index (25
emerging country indices) lost more than half its value (54.5 per cent) over the same period - the worst
annual performance since the measure was created two decades ago.
22
World Bank: The financial crisis and mandatory pension systems in developing countries, 2009.
23
ibid.
18
These developments come on the heels of an expansionary period
where the gains of growth were unevenly distributed
The global economic crisis comes after a sustained period of growth, when
benefits were unevenly shared.24 During the two decades that preceded the
crisis, the incomes of richer groups grew faster than those of middle- and
low-income groups.25 As mentioned in box1, growing income inequali-
ties within countries contributed to an increase in the demand for credit,
which, in conjunction with poor financial regulation, lies at the heart of
the current crisis.
In sum, the risks of prolonged labour market and enduring social crises
need to be averted
By definition, any financial crisis has serious consequences on the entire real
economy, which depends so vitally on financial markets in order to grow
and create jobs. But the current financial crisis is deeper than recent ones.
It has its origins in developed countries which had been the engine of glo-
bal demand and trade growth. In addition, given the strong international
inter-linkages, it affects most countries. And, against the backdrop of the
pre-crisis expansionary period, in which gains were unevenly shared, the
economic and social costs of the crisis are noticeably widespread. Perceptions
of unfairness are mounting, increasing the risk of social instability.
The challenge is to avoid a major labour market and social crisis. Already,
job losses have mounted and new entrants like youth have had difficulty
finding employment. However, the rise in unemployment has been con-
tained to some extent as firms have attempted to limit the extent of lay-
offs via recourse to shorter hours and partial unemployment. This could
change with a prolonged recession in such an event, significant increases
in unemployment would be unavoidable and, in developing countries, a
long-lasting shift to informality and higher working-poverty would occur.
24
ILO: World of Work Report: Income Inequalities in the Age of Financial Globalization, IILS, Geneva,
2008.
25
ibid and ILO: Global Wage Report, Geneva, 2008.
19
A prolonged recession would have deeper effects than just higher unem-
ployment and increased informality and working-poverty. With so many
people around the world lacking social protection, social hardship resulting
from poor job prospects would intensify. Some developing countries will
also need to integrate growing numbers of return migrant workers. And
within countries the movement of workers from urban centres where jobs
disappear, back to rural areas poses acute challenges as well. Social protec-
tion itself is being affected by the crisis, at the time when it is most needed,
especially in countries that relied excessively on private pension funds or
employer-provided health care.
II. International and country responses to the crisis
Given the grim economic outlook, and risk of widespread labour market
and social consequences, countries around the world have adopted unprec-
edented measures to address the global economic slowdown. This section
provides a brief overview of the outcomes of efforts to coordinate the meas-
ures among countries. It also describes rescue efforts undertaken by 40
countries (including the G20).26 This includes an overview of the labour
market initiatives that have been put in place, and the role of social dialogue
and tripartite institutions in shaping the discourse to date.
International efforts to coordinate responses to the crisis have been stepped up

The global financial market has been unstable since as early as 2007. But
2008, marked by bankruptcies and bailouts of financial institutions (nota-
bly AIG, Bears Stearns and Lehman Brothers) placed the financial system
in a state of constant turmoil and volatility. Credit markets froze and stock
indices tumbled throughout 2008 and into 2009. The first round responses
were largely uncoordinated, but the case for more internationally coordi-
nated action has become increasingly clear as witnessed by several efforts.
These include:
the G20 commitment at the meeting in Washington in November 2008,

which prescribes action to be taken in key determinants of decent work
and agrees on the importance of coordinating macro-economic policies
and reducing global imbalances; the G20 is scheduled to meet again in
April 2009 to follow-up on the recommendations and policy outlines.
an Economic Recovery Plan approved by the European Council in 2008

(200 billion euros), which aims to boost demand through joint fiscal
stimulus action as well as temporary support for the unemployed through
cash transfers and extension of unemployment benefits. It also calls for
lower taxes and social contributions, and measures targeting small enter-
prises.27
26
For a detailed presentation of the measures, see Khatiwada, forthcoming, 2009.
27
On 11 and 12 December 2008, the European Council approved a European Economic Recovery Plan,
equivalent to about 1.5 per cent of the GDP of the European Union. The plan provides a common
framework for the efforts made by Member States and by the institutions of the European Union.
21
Figure 7 IMF assistance as percentage of GDP
Iceland 11.0
Hungary 9.6
Ukraine 8.3
Latvia 7.1
Pakistan 4.7
Belarus 3.5
0 3 6 9 12
Source: IMF.
Table 2 Crisis resolution instruments for selected countries1
Increased Guarantees Fund to Purchase Ban or Capital Options Induced IMFs

guarantee for bank purchase mortgage restrict Injections to purchase Mergers emergency
of private loans commercial bonds short- assets of & lending
deposits or debt papers selling2 uncertain Acquisitions
value
Australia
Austria
Belgium 100000
Brazil
Canada
China
Denmark
Finland 50000
France 70000
Germany
Greece 100000
Hungary 50000 $15.7 billion
Iceland $2.1 billion
India
Indonesia 2 billion rupiahs
Ireland 100000
Italy 100000
Japan
Korea
Mexico
Netherlands 100000
New Zealand
Norway
Poland 50000
Portugal 100000
Russia
Saudi Arabia
Spain 100000
Sweden 50000
Switzerland
Turkey
United Kingdom 50000
United States $250,000
1
Most crisis resolution instruments were put in place in October-December, 2008, but given the persisting
financial market instability, countries have adopted other measures or amended the existing ones; only the
countries that instituted at least one measure are included. An denotes some action taken by a country in
the corresponding area.
2
Ban on short-selling has been lifted for some asset classes in Switzerland and the UK.
Source: IILS based on Bloomberg, Bank for International Settlements and OECD.
22
II International and country responses to the crisis
Addressing the social dimensions of the crisis is at the core of ILOs man-
date. The Social Justice Declaration stresses that As trade and finan-
cial policy both affect employment, it is the ILOs role to evaluate those
employment effects to achieve its aim of placing employment at the heart
of economic policies.
The IMF has provided financial assistance to countries affected by rap-

idly declining capital inflows, and balance of payments deficits. The policy
response by most emerging economies facing such situations has generally
involved pro-cyclical fiscal and monetary tightening designed to restore
market confidence, combined with IMF interventions to bail out interna-
tional creditors and investors (see also section IV).28 Therefore, as part of
the crisis resolution tools available for countries, the IMF has offered its
fast-track emergency lending facilities. So far, the governments of Belarus,
Hungary, Iceland, Latvia, Pakistan and Ukraine have resorted to IMF loans
to restore their financial and economic systems (figure 7). Latvia has a
stand-by arrangement whereby IMF credits can be provided to finance
a temporary balance-of-payments deficit. The IMF also has about $200
billion for immediate lending and can draw an additional $50 billion if
needed.29
Governments have provided prompt,

massive support to rescue the financial system
Government efforts to strengthen bank balance sheets were initially under-
taken on a case-by-case basis. For example, the United States and European
governments injected capital into individual banks or induced mergers in
hopes of reviving the credit market by encouraging banks to lend to one
another. But market confidence continued to decline and credit markets
remained frozen, highlighting the need for system-wide intervention.
The system-wide interventions subsequently put in place by the United

States and European governments have involved ensuring bank funding
through explicit government guarantees on retail deposits and other bank
28
Y. Akyz: From liberalization to investment and jobs: Lost in translation, Policy Integration and Statistics
Department, Working Paper No. 74, ILO, Geneva, 2006.
29
As IMF Managing Director Dominique Strauss-Kahn recently pointed out, the IMF may need another
$150 billion to help counter the hit to emerging markets and poor countries. Japan has pledged $100
billion while other nations have yet to commit to help.
23
liabilities, and reducing bank leverage through government purchases of

distressed assets or capital injections. Almost all the major economies have
increased guarantees of private deposits, put in place inter-bank loan guar-
antees, banned or restricted short-selling and injected capital into troubled
banks by buying equity stakes (table 2).
Australia, Canada, Germany, Norway, Spain, Switzerland and the United

Kingdom have put in place measures to buy or insure assets of uncertain
value, while the United States abandoned this plan at least initially in
favour of direct capital injections. However, under the new administra-
tion, the United States has put in place measures to get troubled assets
off banks balance sheets by using at least $500 billion (possibly up to
$1 trillion) in private and government money. The three main elements
of the new programmes proposed by the United States Treasury Secretary
are: injecting government capital into the biggest financial institutions;
establishing public-private partnership to buy banks troubled assets; and
starting a credit facility with the Federal Reserve to promote lending to
consumers and businesses.
Despite the international efforts to stabilize the global financial system,

banks around the world continue to face numerous challenges with consid-
erable debate as to how to solve the problem, e.g. through nationalization
or not.30 The current U.S. government plan involves a public-private part-
nership to acquire the troubled assets rather than a full-scale nationalization
of banks. Meanwhile, many of the European countries are taking steps that
would increase state control of the banking sector. For example, Germany
recently approved draft legislation to nationalize one of its banks the first
German bank nationalization since the 1930s.
30
In 1992, Sweden took over its banking system, nationalized the insolvent banks, cleaned up the balance
sheets, and then re-privatized them.
24
which has been supported by monetary easing
and other actions of central banks
In addition, central banks around the world have taken action to address
the challenges in the global financial market by means of providing liquid-
ity and easing monetary conditions.For example, the United States Federal
Reserve Bank and other major central banks, including the European
Central Bank, the Bank of England, and the Bank of Japan increased
assets substantially in order to provide direct lending to banks and dealers
through existing and new lending facilities. Aggressive monetary easing has
also been adopted in light of the rapidly deteriorating economic outlook,
including a series of internationally-coordinated interest rate cuts (table 3).
In the current context, monetary policies have been used as the first line
of defence in an attempt to sustain and strengthen aggregate demand and
economic activity. This shift in focus of monetary policy from inflation
targeting to supporting economic activity has been supported by a rapid
decline in inflation, with some countries now facing deflationary pressures.
Even among emerging economies, inflation fears have largely subsided with
the rapid decline of commodity prices.
However, with interest rates approaching zero in many countries, central

banks have turned to quantitative easing and qualitative easing (also known
as credit easing).31 Quantitative easing involves increasing the base money
stock by purchasing government securities and qualitative easing involves
purchasing private securities, including possibly illiquid private securities
and/or private securities subject to substantial default risk. Despite these
efforts though, global economic activity has continued to decline and gov-
ernments have turned their attention to fiscal rescue packages.
31
Federal Reserve Bank Chairman Ben Bernanke calls qualitative easing credit easing.
25
Table 3 Monetary policy interest rate changes
Australia Cut to 3.25 percent, Feb. 09
Austria Cut (ECB)1
Belgium Cut (ECB)
Brazil Cut by 1 percentage point to 12.75 percent, Jan. 09
Canada Cut by 2.25 percentage points over 2008; cut by 1 percentage points in 2009 to .59 percent, Mar. 09
Chile Cut the overnight lending rate by one percentage point to 7.5 percent, Jan. 09; cut by another 0.25 percentage points to 7.25 percent, Jan. 09
China Cut one year lending rate by 1.89 percentage points to 5.58 percent, Dec. 08; cut by another 0.27 percentage points to 5.31 percent, Dec. 08
Denmark Cut by 0.75 percentage points to 2.25 percent, March 09
Finland Cut (ECB)
France Cut (ECB)
Germany Cut (ECB)
Greece Cut (ECB)
Hungary Increase by 3 percent, Oct. 08 (emergency measure); cut by 0.5 percentage points to 10 percent, Dec. 08; cut by another 0.5 percentage points to 9.5 percent, Jan 09
Iceland Increase (emergency measure); interest rate at 18 percent, Jan 09
India Cut by a percentage point to 6.5 percent, Dec. 08; cut by another percentage point to 5.5 percent, Jan. 09; cut by 0.5 percentage points to 5 percent, March 09
Indonesia Cut by 1.5 percentage points to 8.75 percent, Jan. 09; cut by 0.5 percentage points to 8.25 percent, Feb. 09; cut by 0.50 percentage points to 7.75 percent
Ireland Cut (ECB)
Italy Cut (ECB)
Japan Cut by 0.2 percentage points to 0.3 percent, Oct. 08; cut by another 0.2 percentage points to 0.1 percent, Dec. 08
Republic of Korea Cut by one percentage point to 3 percent, Dec. 08; cut by another percentage point to 2 percent, Feb. 09
Malaysia Cut by 0.75 percentage points to 2.5 percent, Jan. 09; cut by 0.5 percentage points to 2 percent, Feb 09
Mexico Cut by a quarter of a percentage point to 7.5 percent, Feb. 09; cut by 0.75 percentage points to 6.75 percent, March 09
Netherlands Cut (ECB)
New Zealand Cut by 0.5 percentage points to 3 percent, March 09
Nigeria Cut by 0.55 percentage points to 9.7 percent, Sept. 08
Norway Cut by 0.5 percentage points to 2.5 percent, Feb 09
Philippines Cut by 0.5 percentage points to 5 percent, Jan. 09
Poland Cut by 0.25 percentage points to 4 percent, Feb 09
Portugal Cut (ECB)
Saudi Arabia Cut main repo rate by 0.5 percentage points to 2.5 percent, Dec. 08; cut by another 0.5 percentage points to 2 percent, Jan. 09
South Africa Cut main repo rate by 0.5 percentage points to 11.5 percent, Dec. 08
Spain Cut (ECB)
Sweden Cut by 1.75 percentage points, Dec. 08; cut to 1 percent, Jan 09
Switzerland Cut to 0.5 percent, Dec. 08; cut to 0.25 percent, March 09
Thailand Cut to 2 percent, Jan. 09; cut by 0.5 percentage points to 1.5 percent, Feb 09
Turkey Cut to 13 percent, Jan. 09; cut by 1.5 percentage points to 11.5 percent, Feb 09
United Kingdom Cut by one percentage point to 2 percent, Dec. 08; cut by 0.5 percentage points to 1.5 percent, Jan. 09; cut by another 0.5 percentage points to 1 percent, Feb. 09
United States Cut by 3.25 percentage points from Jan. to Oct., 08; cut to a range of 0.25 to 0 percent, Dec. 08
Vietnam Cut by 1.5 percentage points to 7 percent, Jan. 09
1
The European Central Bank (ECB) rate stands at 1.5 per cent as of March 2009.
Source: IILS, based on Bloomberg and national sources.
26
Fiscal stimulus packages have been announced, though with a delay vis--vis
financial rescue measures
As the G20 Summit in Washington underscored, there is a growing con-
sensus that aggressive fiscal measures cutting taxes and boosting spending
are required to stimulate domestic demand and avert the worst economic
slump since the Great Depression. As a result, countries have announced
fiscal rescue packages of varying sizes, with China announcing the biggest
package as a percentage of GDP, followed by Saudi Arabia, Malaysia, and
the United States (figure 8). The total economic stimulus announced by
32 countries (including all the G20) as a percentage of global GDP is 1.4
per cent.
Figure 8 Fiscal package as a percentage of GDP in 20091

China 13.0
Saudi Arabia 11.3
Malaysia 7.9
United States 5.6
Mexico 4.7
Argentina 3.9
Hungary 3.8
New Zealand 3.8
Philippines 3.7
Thailand 2.8
Germany 2.8
Korea 2.7
Australia 2.5
Chile 2.3
Japan 2.3
Canada 2.0
United Kingdom 1.3
South Africa 1.2
Indonesia 1.2
Russia 1.1
France 1.1
Portugal 1.1
Vietnam 0.9
Spain 0.8
Netherlands 0.8
Norway 0.6
Belgium 0.5
India 0.3
Switzerland 0.3
Italy 0.3
Brazil 0.2
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
1
2008 GDP from IMF World Economic Outlook. Developed economies are indicated in red; developing
and emerging economies, in white. The time frame of spending is available for less than half of the countries.
These estimates were calculated by taking the total package as the numerator and the GDP in 2009 as the
denominator. The GDP in 2009 was estimated by using 2008 GDP and growth forecasts (March 2009) by
the IMF for 2009.
Source: IILS, based on national sources.
27
... and significant variation in the composition of spending efforts

Across a range of 22 countries with detailed available data, there is sig-
nificant variation in terms of the emphasis placed on different compo-
nents of the stimulus package (figure 9). Sixteen out of 22 countries have
announced spending on infrastructure projects, and on average, close to
one third of economic stimulus packages are directed towards such spend-
ing. Infrastructure projects are part of public works programmes announced
by countries which are designed to create jobs and increase long-term eco-
nomic growth.32
Tax cuts such as reductions in VAT, income taxes, payroll taxes, and sales
taxes have been put in place by more than half the countries and on average
21.5 per cent of the global stimulus is in this category (see section V for a
breakdown by advanced and developing and emerging economies).
On average, direct transfers to low-income households and employment

measures constitute the two smallest portions of stimulus packages 9.2
per cent and 1.8 per cent respectively. Moreover, half or less of the coun-
tries have announced transfers to low-income or employment measures,
respectively. Transfers to low income include direct cash payments, condi-
tional cash transfers, and payment of unemployment benefits. Meanwhile,
employment measures include increasing the number of training centres
and services like job search and placement. Creation of new jobs mostly
falls under infrastructure spending.
A broader analysis of the 40 countries (including the 22 discussed above)

with available data confirms that the composition of rescue packages var-
ies considerably, but almost all the rescue efforts can be divided into three
main areas: increase spending on public goods and services, fiscal stimulus
aimed at consumers (e.g. personal income tax cuts, cash transfers), and fis-
cal stimulus aimed at firms (e.g. corporate tax cuts).33
32
Spending in this category also includes energy efficient investments designed for sustainable develop-
ment.
33
See Khatiwada, forthcoming 2009, for qualitative data for these 40 countries under the three categories:
stimulus aimed at consumers, stimulus aimed at firms, and public spending on goods and services.
28
Figure 9 Composition of spending as a percentage of total for selected countries 1,2
Tax Cuts, 21.5
Other Spending, 39.8
Transfers to Low Income, 9.2
Employment Measures, 1.8
Infrastructure Spending, 27.8
1
Based on 22 countries 10 advanced and 12 developing & emerging economies.
2
Other spending includes all other measures, which are country specific and/or difficult to categorize
in the first four categories. Some of the components include, for example, direct/indirect help to businesses,
indirect transfers for consumers, and increased funding for education and health.
Source: IILS, based on Bloomberg, Asian Development Bank, and New York Times.
In terms of spending on public goods and services:

At least half the countries have announced spending increases in infra-
structure and on education and health:
infrastructure projects generally focus on building and repair of roads,
bridges, railway lines, and rural infrastructure with attention given to
projects in the pipeline (e.g. China, Germany and Saudi Arabia). Some
countries (e.g. China, Japan, Portugal, and the United States) include
energy-efficient projects as part of infrastructure investments. China
and Thailand have also announced measures to increase home avail-
ability (through public housing projects) for poor households;
in terms of education and health, China and Saudi Arabia have
announced significant increases in education and health spending with
some school and hospital constructions as part of rural development
programmes for several countries.
29
In terms of fiscal stimulus aimed at consumers:

Germany, New Zealand, the Russian Federation, Spain, the United
Kingdom, and the United States are some of the many countries that
opted for tax cuts aimed at stimulating consumer spending (these tax
cuts fall into two categories: income tax cuts and sales tax cuts such as
VAT reductions). Others have adopted tax cuts to boost sales in certain
sectors, such as automobiles in Brazil and Germany.
Australia, Italy, Mexico and the United States have put in place measures
to help home buyers. In some cases, this includes incentives for consum-
ers to purchase energy efficient homes and greening existing homes by
providing subsidies and tax exemptions.
Australia, China, France, Indonesia, Italy, Japan, Mexico, Philippines,
Spain, and the United States have announced increases in social trans-
fers aimed at poor and low-income households. Social transfers include
direct cash transfers, conditional cash transfers, and social welfare pro-
grammes.
In terms of fiscal stimulus aimed at firms:

Several stimulus packages have placed emphasis on the viability of large
firms, especially in the financial and automotive sectors.
In some cases, measures have been explicitly targeted at SMEs (e.g. Japan,
the Republic of Korea, and Mexico). In addition, public investments in
infrastructure, construction and housing will also provide new market
opportunities for SMEs. Other measures to firms have been specifically
targeted to mitigate the impact on employment.
... and varying degrees of direct support for employment and social protection
Some countries have announced explicit measures to help workers and
employers as part of their fiscal rescue efforts (see specific country examples
in table 4):
Brazil, Chile, Japan and the United States have put in place extension of
unemployment benefits. France, Italy, and Switzerland have also put in
place more generous systems of unemployment benefits for temporar-
30
Table 4 Examples of labour market initiatives in response to the crisis1
I. Extension of Unemployment Benefits II. Activation Measures III. Increase in Public Sector
Jobs or Infrastructure
pending3
A. Hiring Incentives for Employers2 B. Other activation measures
(job-search help, training,
measures targeted at
disadvantaged group etc)
Argentina
Australia Funds to employers for staff development Increase in productivity training places
and training programs from 57,000 to 113,000
Belgium Cuts in employers social security A recovery plan for the labour market
contributions agreed on Dec, 08
Brazil Increase in minimum wage by 12 % as

of Feb-09, which will affect 45 million
workers; expansion of UE benefits from 3
to 5 months to 5 to 7 months
Canada Extension of benefits by five weeks $1.5 billion in training fund for laid-off
workers
Chile
China (ongoing discussions at the local and Reduction in medical and accident insur- Nationwide vocational training program A temporary moratorium on firing in state
regional level; recommended by the ance premiums; flexible working hours for migrant workers returning home after owned enterprises
central govt.) and pay for service sector firms losing jobs
France Employers with less than 10 employees
will not pay social taxes for each new
employee they hire in 2009.
Germany Reduction in health insruance contribution
India
Indonesia Job training; voluntary transmigration
programs for laid off workers to areas less
affected by the crisis
Ireland Plans to increase wages in public sector
Italy Unempoloyment benefits to people who
previously failed to qualify
Japan Increased subsidies for SMEs employers; Support for non-regular workers in Finanical support to local governments
subsidies for employers who hire tempo- job-placement that hire job-seekers
rary workers as regular employees
Korea Support vulnerable workers (outside the Tax exemption and extension on tax
boundaries of a social safety net) who are submission periods for employers that
put on unpaid temporarily leave maintain their workforce
Malaysia Training for retrenched workers; re-trai-
ning unemployed graduates over the next
2 to 3 years
Mexico 15 billion pesos in aid to laid-off workers Measures to prevent job losses - 2 billion Increase in seasonal employment program
pesos to companies facing production
cuts and layoffs
Netherlands Subsidies for company payrolls Establishment of mobility centers to
assist employees in finding jobs
Philippines Increase in CCTs

Portugal Employment programs
Saudi Arabia
Spain A 1,500 per job subsidy for companies
that hire unemployed workers with fami-
lies to support.
Sweden Subsidies for employers hiring workers Job matching programs for unemployed
who have been unemployed for long
periods
Thailand Cost of living alleviation projects and Capacity building for the unemployed
sustenance allowance
Turkey (proposed but not approved) Subsidies to employers

United Kingdom Subsidies for employers (up to 2,500)
who hire workers that have been unem-
ployed for more than 6 months
United States Extension of unemployment benefits;
health insurance for those who lost their
job; increase in food stamps; increase in
social security benefits
Vietnam New unemployment insurance program,
Jan-09
1
This table includes only the explicitly announced measures. An denotes some action
taken by a country.
2
Corporate tax cuts are not counted as an incentive for employers to hire, nor are sectoral subsidies.
3
All the countries with increased spending in infrastructure projects are counted, as are countries that
increased public sector employment.
Source: IILS, based on national sources.
31
ily laid-off workers. Meanwhile, Canada, China, and Turkey are in the
process of extending unemployment benefits. Other countries like the
Republic of Korea, Philippines, and Thailand have announced country-
specific measures to assist vulnerable workers.
Some countries are making greater use of in-work benefits in conjunction

with reduced working hours to curtail layoffs. For example, in Germany,
the government extended the possibility for workers who continue to be
employed but at reduced working hours to receive income supple-
ments, and companies are reimbursed 100 per cent of their social security
contributions on behalf of employees when the down time (i.e. reduced
working hours) is used for training.
To encourage hiring, some countries have announced subsidies and

exemptions. For example, the United Kingdom has announced subsidies
for employers (up to 2,500) who hire workers who have been unem-
ployed for more than six months, and Japan has announced subsidies
for employers who hire temporary workers as regular employees. Other
countries that have announced some sort of hiring incentives include
Australia, Chile, China, France, Germany, the Republic of Korea, the
Netherlands, and the United States.
Australia, Canada, Chile, China, France, Germany, Indonesia, Japan,

the Republic of Korea, Portugal, Thailand, the United Kingdom and the
United States have announced training programmes for laid-off workers
as part of their labour market initiatives. Training programmes include,
among others, vocational workshops for laid-off migrant workers, and
expanded opportunities for apprentices in trades.
It is also likely that the new infrastructure projects, discussed briefly

above, and increased funding for local governments will result in more
public sector jobs. As of March 2009, some 20 countries of the 40 have
made such announcements.
32
A few countries have announced explicit goals for job creation. These
include Chile (100,000), France (80,000 to 110,000), Hungary (20,000),
Indonesia (2.6 million), Spain (300,000) and the United States (3.5 mil-
lion). Interestingly, in France, Spain and the United States, job goals
include the creation of green jobs. However, the goals for job creation do
not include plans to save existing jobs.
However, there are uncertainties regarding the precise size

and timing of the package
There are uncertainties regarding the exact size and timing of the stimulus
packages. First, the breakdown of rescue efforts in terms of old spending
(already in the pipeline) and new spending is uncertain. Second, the time-
horizon in which the stimulus package will be administered is also unclear.
For some countries like China, Germany and the United Kingdom, the
time frame is two years (200910), but for most countries, the time frame
of new spending measures has not been decided as yet. Third, most coun-
tries have announced fiscal rescue packages different from their financial
rescue packages, but there is a tendency to count in financial help to differ-
ent sectors (like loan guarantees) as part of the package. For the countries
examined here, an attempt has been made to disentangle fiscal efforts from
financial efforts. And fourth, some countries have announced stimulus
spending embedded in their annual budgets, which makes it difficult to
identify the size of spending allocated to stimulate the economy.
There have been some efforts to engage social partners,

but more could be done
In the early stages of the crisis, social partners in many countries had lim-
ited involvement in the design and implementation of government anti-
crisis measures.34 More recently, in some cases, social dialogue has been at
the heart of governments plan to address the economic slowdown. These
include:
34
Rychly, forthcoming 2009.
33
In Ireland, an agreement was signed between the government and the

social partners, following a discussion of the governments recommenda-
tions for sustainable economic renewal. The agreement covers issues of
pay growth, employment rights of temporary workers, and voluntary
arbitration, among others.
In Pakistan, the tripartite Labour Conference was addressed by the Prime

Minister, who announced a new era of consultations with social partners,
and modernization of the countrys labour law in cooperation with the
ILO and the WTO.
In some cases, agreements arising from social dialogue initiatives have been
embodied into law, such as the decree on partial unemployment benefits in
France. Other countries such as Germany have passed a second economic
stimulus package following extended consultations with national employers
and workers organizations. In the Russian Federation, the national tripar-
tite commission dealt with the social impact of the crisis several times since
October 2008. In some countries, these bipartite or tripartite consultations
and negotiations went beyond the scope of narrowly defined labour issues,
but also dealt with state budgets and larger economic and policy matters.
Figure 10 Comparison between fiscal and financial rescue efforts as a percentage of GDP
35
Financial Rescue Efforts
Fiscal Rescue Efforts 28.6
30
25
19.8 19
20
14.3
15
10
5.1 5.6 6.1

5 2.8 2.5
1.1 1.3 1.1 0.8 1.1
0
US Germany France UK Portugal Spain Russia
Source: IILS, based on OECD & Bloomberg.
34
In sum, action has been swift, but relatively misaligned
There has been considerable emphasis on rescuing the financial sector. As
figure 10 shows, among the advanced economies, the amount spent on
financial rescue efforts far surpasses fiscal rescue efforts for all countries
except the United States.35 Indeed, protecting banks solvency and restoring
the availability of credit to enterprises and households was rightly regarded
as a pre-condition to avoiding a total collapse of the financial system, with
unpredictable consequences for the real economy. Governments have also
announced fiscal stimulus measures an important step in the right direc-
tion.
But there is much debate regarding the desirable content of the packages,
their timing, and whether some of the measures should be merely tempo-
rary as championed by the 3 t approach or rather, more enduring.36
The next sections address these issues.
35
From an accounting point of view, financial rescue packages may not have any impact on the current
net debt or budget balance. Measures like capital injection, if treated like a financial transaction, where the
government receives in return a financial asset of equal value to the payment, would not affect the budget
balance. In fact, the government could theoretically earn income once the markets return to normalcy.
Furthermore, buying troubled assets could also prove to be profitable if the government manages to sell
them at a higher value. And finally, loan guarantees are not exactly fiscal costs because they might never be
exercised or used. Nevertheless, while it is true that comparison between financial and fiscal rescue efforts
as a percentage of GDP should not be taken literally, it is very likely that governments will incur costs in
rescuing the financial sector which will be far greater than the costs of the fiscal rescue efforts.
36
According to the 3t approach, governments should intervene to address the crisis. But interventions
should be timely, targeted and - in particular - temporary. The latter means that deviation from market
principles should be provisional. Once the economy recovers from the crisis, the state should phase out
the measures as quickly as possible.
35
III. Decent Work as a cornerstone of the recovery:
A global jobs pact *
A global jobs pact would be instrumental in overcoming the crisis and pav-
ing the way for a more sustainable economy. A global approach is needed
because the measures, to be effective, need to be coordinated across coun-
tries. The emphasis on jobs comes from the realization that decent work is
central to reactivating the economy in a sustainable manner. This builds
on ILO experience with the Global Employment Agenda.37 Measures are
best implemented through social dialogue at the national level, but greater
cooperation at the international level can also have mutually reinforcing
benefits thus the need for a pact. In this respect, building upon the les-
sons of the past and avoiding counterproductive measures, such as trade
protectionism and generalized wage deflation, will also prove invaluable.
More specifically, by putting the Decent Work Agenda at the forefront,

a global jobs pact could ensure that stimulus measures more effectively
tackle the transmission mechanisms of the crisis, namely the credit crunch,
the rapid deterioration in domestic demand conditions and the recession
in external markets. A global jobs pact could also address the key fac-
tors that nurtured the crisis and lay the foundation for a more sustainable
economy.
Reviving the credit system and providing targeted support

to sustainable enterprises
Experience from previous financial crises suggests that adopting stimulus
packages without reviving the credit system may end up raising public debt
without stimulating the economy and creating jobs.38 Furthermore, it has
been shown that countries can incur significant fiscal costs because of their
failure to tackle problems in the financial system in a timely manner.39 In
*
The valuable contributions made by Naren Prasad and Megan Gerecke to this section are gratefully
acknowledged (see Prasad and Gerecke, forthcoming, 2009).
37
See GB.286/ESP/1(Rev.) and GB.300/ESP/2. Moreover, since 2000, the International Labour
Conference has adopted conclusions concerning the following employment themes: decent work and the
informal economy (2002); youth employment (2005); the promotion of sustainable enterprises (2007);
skills for improved productivity, employment growth and development (2008); and promotion of rural
employment for poverty reduction (2008).
38
The Japanese financial crisis during the 1990s, and the debate about the lost decade, is a case in point.
39
Reinhart and Rogoff, 2008a.
37
light of these lessons, successfully stimulating economic activity will require

reactivating credit markets, thus helping businesses to remain viable and
be in a position to respond to well-designed fiscal stimulus programmes.
A well-functioning financial system is essential for a growing and dynamic
private sector. Easier access for SMEs, including cooperatives and start-ups,
to financing (such as credit, leasing, venture capital funds or similar or new
types of instruments), creates appropriate conditions for a more inclusive
process of enterprise development. Financial institutions, particularly mul-
tilateral and international ones, should be encouraged to include decent
work in their lending practices.40
Re-activating credit to stimulate the real economy

Despite the large-scale financial rescue measures, there are indications that
banks are reluctant to lend. In the EU and the United States, lending
standards have tightened considerably (figure 11). As a result, individuals
and firms have delayed investment decisions, constraining future economic
growth and job creation.41
One factor is that government conditions for support to banks have thus far
been weak. Even in countries where banks receiving government support
are required to make credit available to businesses, there are no sanctions
or penalties for institutions that fail to comply. Banks continue to undergo
the process of deleveraging, i.e. the amount of capital available to the real
economy is restricted by banks efforts to improve their balance sheets and
reduce the burden of toxic assets.42
Interestingly, in the United States, state-owned banks have shown greater

readiness to lend to businesses and consumers than their private-sector
counterparts. This might reflect more limited exposure to risky financial
operations among state-owned banks. But the fact that these banks are
directly accountable to the government may have contributed as well.43
40
ILO: Conclusions concerning the promotion of sustainable enterprises, International Labour
Conference, Geneva, June 2007, para. 11.
41
A prolonged investment slump would entail lower capital accumulation, thus reducing productivity gains
and limiting the scope for improved living standards in the long-run.
42
As illustrated in Section II, some government efforts have attempted to address this directly by purcha-
sing or insuring assets of uncertain value in the hopes of improving the lending situation.
43
Cooperative banks have reportedly pursued their regular lending operations as well (see H. Hagen, ILO,
2009, forthcoming).
38
III Decent Work as a cornerstone of the recovery: A global jobs pact
Figure 11 Percentage of lenders tightening standards, by size of enterprise seeking loans
Panel A: United States

100
Large and Medium

80
Small
60
40
20
-20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
Panel B: European Union

80
Small and Medium

60
Large
40
20
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
Source: US Federal Reserve; ECB.
with support for SMEs

Tighter lending standards present particular challenges for SMEs given
their reliance on bank credits they do not have access to capital markets
in the same way larger firms do. This is why restoring credit conditions in
general will have especially favourable effects on small businesses. In the
meantime, measures such as special credit lines and direct access to govern-
ment loans could be envisioned for SMEs to assist them in gaining access
to capital.
39
This will be key if SMEs, which account for up to 95 per cent of enterprises
and are responsible for most existing and new jobs, are to take advantage
of new opportunities that arise from the public investments in infrastruc-
ture, construction and housing. The ILOs Small Enterprise Development
Programme can play a helpful role in this respect (box 5).
... and viable sectors through social and green investments,

not protectionism
As noted in the first section of this paper, the crisis is hitting certain sec-
tors harder than others. Export-oriented sectors are particularly vulnerable
to both the credit squeeze, given their reliance on trade finance, and the
spectacular fall in world demand and commodity prices.
Governments are thus under growing pressure to provide assistance to these

sectors. Some countries have already increased import duties on automobile
parts or steel. Others have imposed caps on imports of certain products, like
chemicals or wood. Yet others have added buy national provisions in their
fiscal stimulus plans. These types of measures can incite other countries to
retaliate, or adopt counterbalance measures. Moreover, history shows that
in the long-run protectionist measures are likely to create more substantial
employment and income losses.
Instead, there are ways to support the long-run viability of industries by,
for example, re-orienting them towards greener technologies that would
help stimulate economic activity by facilitating industrial restructuring;
support sustainable employment creation; and prepare for the transition
to a less CO2-intensive economy (see also section IV). One way to achieve
this would be to provide assistance to certain sectors subject to social and
environmental objectives.44 The importance of synergies between invest-
ments in clean technologies and job creation has been recognized at the
international level through the creation of the Green Jobs Initiative. The
ILO has an important role to play in this initiative, along with its partners
(United Nations Environment Programme, the International Trade Union
Confederation and the International Organisation of Employers) to ensure
44
For example, Frances plan to support its auto industry includes requirements that funding be used to
invest in green technologies and that no layoffs would occur in 2009.
40
Box 5 ILOs Small Enterprise Development Programme
The ILOs Small Enterprise Development Programme provides policy advice and sup-
port to SMEs in clusters and value chains, particularly those with job creation potential,
to improve quality and productivity by enhancing good workplace practices and mana-
gement-labour collaboration.
The programme also aims to maximize SME involvement in public procurement pro-
grammes. For instance, the programme has been assisting governments to administer
and supervise contracts for local contractors and training local contractors to tender
and deliver such contracts. Such activities are helpful complements to infrastructure
programmes carried out as part of the response to the crisis.
Another role of the programme is to assist national and local governments in reviewing
and improving the regulatory environment for SMEs. This too can be instrumental in
times of crisis.
that green jobs become a positive driver of development in an environmen-

tally, socially, and economically sustainable future.45
Boosting the economy through employment-oriented,

coordinated actions
Despite the numerous stimulus packages introduced to date, aggregate
demand continues to worsen. As noted above, part of the problem may be
that efforts to address the challenges have been insufficient in magnitude
(see section V for an assessment of existing stimulus efforts). In fact, some
of the new public spending is a repackaging of previously committed
funds. Countries are reluctant to announce bold measures however because
they are worried they will leak into the economies of their trading part-
ners a situation that is exacerbated, in some cases, by already deteriorat-
ing fiscal positions. This underlines the importance of measures that are
coordinated across countries.
45
ILO: Green Jobs Initiative.
41
Stimulus packages need to be timely and better coordinated

The complexities of the decision-making process may delay the adoption
of stimulus packages. However, if unduly delayed, measures may come
at a time when the recession is well under way and packages may prove
insufficient or ill-adapted to the evolving circumstances (see also section
V). Success in overcoming earlier financial crises in the Republic of Korea
and Sweden is associated with the prompt adoption of a stimulus package.
According to a simulation developed for the purpose of this paper, and
assuming that credit markets were restored, it would take one year for the
United States economy to recover if the current administrations rescue
package was implemented now. And, according to the estimates, it would
take almost two years if implementation of the package were delayed by
three months.46
Better coordination of fiscal stimulus packages could also enhance the

impact on global demand. There are cross-border externalities to the
financial and fiscal rescue packages. Capital injections by the United States
authorities would help alleviate the European financial crisis and vice versa.
Likewise, a fiscal stimulus put forward by the Chinese government helps
its trading partners and vice versa. Coordination is especially important in
countries where fiscal space is limited as in the case of many African coun-
tries. In the absence of coordination in their response, these countries may
be tempted to engage in a process of competitive devaluations or, worse,
wage deflation. Coordinated action will also help boost world demand,
hence cushioning the effects of a global recession.
... with a strong focus on employment

One of the lessons of the analysis carried out for this paper is that the greater
the employment orientation of the measures, the stronger the stimulus for
the real economy. As shown in figure 12, measures that have a direct impact
on employment have a stronger effect than relatively untargeted measures
(such as VAT cuts, or across-the-board spending increases).
46
Ernst and Charpe, forthcoming 2009.
42
In particular, the multiplier effects of investments in employment-intensive
areas will be higher than is the case with alternate measures such as tax
cuts.47 At times of crisis, when there is considerable labour market slack,
job-rich investment can crowd-in private sector activities and, more fun-
damentally, unlock development potential and pave the way for higher
long-term growth. In this regard, public investments in infrastructure and
agricultural development represent a major opportunity to address both
employment and development challenges. These can include, among other
things, investments in roads and communication, flood control and public
buildings for education. To effectively lead to higher employment however,
infrastructure projects need to meet existing domestic supply and skills.
Figure 12 Estimated employment effects of different fiscal measures 1
Increase employment-oriented measures
Increase hiring subsidies
Lower wage income taxation
Lower sales taxes
Debt-financed spending increase
0% 2% 4% 6% 8% 10%
1
The figure shows the estimated employment effects of different fiscal measures. Each measure represents the
equivalent of 5.7per cent of GDP the size of the stimulus package recently-adopted in the United States.
For instance, it shows that employment would increase by up to 8 per cent in the long-run, if the entire pac-
kage focused on employment-oriented programmes such as infrastructure spending. Importantly, the estimates
assume that new hires have the skills to perform the jobs created by the programmes. They also assume that
sufficient domestic supply is available to respond to government incentives.
Source: IILS estimates.
47
Spilimbergo, Symansky, Blanchard and Cottarelli, 2008. Stimulus aimed at consumers is potentially
uncertain and limited, and direct subsidies to domestic firms have international trade law consequences and
could lead to an uneven playing field and even trade wars.
43
Employment guarantees are another employment-intensive measure which,

as experience from earlier crises shows, can be especially cost-effective in
the face of the crisis if well-designed and targeted:48
Argentinas Jefes y Jefas de Hogar Desocupados programme, introduced

during the 2001 crisis, reduced aggregate unemployment by an estimated
2.5 percentage points, increased labour force participation and reduced
extreme poverty.49
Similar public works programmes in Indonesia, Republic of Korea and
Thailand adopted after the East Asian financial crisis, proved to be rela-
tively successful in employing large numbers of individuals. However,
studies suggest that programmes could have been more effective if better
designed and monitored.50
The National Rural Employment Guarantee (NREG) of India provides
an important safety net for many rural households. The programme aims
to provide additional employment to the underemployed and the unem-
ployed by entitling every rural Indian household to 100 days of work per
year. The budget for the NREG in 2006-07 was 0.3 per cent of GDP.51
In developed countries where most of the jobs are formal, supporting

employment through partial unemployment benefits or subsidies for short-
er working hours can prove effective. Such measures are being used exten-
sively in some European countries. (see also box 10 below for examples of
experiences during the Asian financial crisis).
supported by efforts to promote workers skills ...

To be successful, employment-intensive investments need to go hand-in-
hand with efforts to promote skills development. In many cases, new skills
will be needed in order to match the requirements of new infrastructure
spending and programmes designed to support sectoral transition, e.g.
towards greener technologies. In this regard, the design of such programmes
48
G. Mrquez, 2000; Cook, 2008. Wage levels are very important in ensuring successful employment
guarantees and public works. If wages are too high, they will distort the labour market and pull individuals
(particularly the non-poor) from employment. High wages will also put pressure on programme funding
and likely result in the rationing of jobs. On the other hand, if wages are too low, programmes will not be
an effective safety net for participants and may become stigmatizing.
49
Galasso and Ravallion, 2004.
50
Betcherman and Islam, 2001.
51
Chakraborty, 2007.
44
is fundamental to ensure success due to the time required to adjust training
provisions accordingly. Implementing time- and cost-efficient methods to
identify current and future skills demands becomes crucial. The conclu-
sions of the 2008 International Labour Conference discussion on skills for
improved productivity, employment growth and development can help in
this regard.
and help jobseekers through effective public employment services

and active labour market programmes
Active labour market programmes play an important role in skills devel-
opment and more broadly in facilitating the adjustment of individuals
to changing labour market conditions. Such programmes can take many
forms, including: job-search assistance and monitoring, personalized action
plans for jobseekers, training, and targeted programmes for disadvantaged
groups. They can also provide much needed income support. If properly
designed, they can enhance employability and improve labour market
mobility in the short term. They can further facilitate matches between
the skills of displaced workers and the skills required in the jobs created by
new public investment (e.g. in construction, infrastructure and alternative
energy).
Some lessons learned to date about enhancing the effectiveness of active

labour market programmes include: an obligation on the part of the benefit
recipient to undertake an activity and enforcement of this obligation by the
programme; making participation in programmes compulsory; targeting
increases effectiveness of outcomes, programmes and services (e.g. combin-
ing training and job-search assistance); and in-work benefits help facilitate
a return to work.52
During a crisis, special programmes to assist displaced or retrenched work-

ers should be intensified. The ILO Guide to Worker Displacement: Some tools
for reducing the impact on workers, communities and enterprises demonstrates
the wide range of possible responses by enterprises, communities and work-
ers to economic downturns and how to reduce potential job losses. Schemes
52
See for example, OECD: Employment Outlook, Paris, 2005; Rosholm and Svarer, 2004; White and Riley,
2002.
45
targeting temporarily laid-off workers can be very efficient, since workers

with firm-specific training are often expected to return to work at the same
firm (or sector) when the business climate improves. This type of pro-
gramme could complement the employment-intensive public investments
and initiatives to extend, or enhance, unemployment benefit coverage. This
may mean allocating additional resources to public employment services.
Already, some national employment services have been mobilized to help
address the global economic crisis (box 6).
Greater use of active labour market programmes could also be foreseen for
some developing and emerging countries. A recent study shows that some
12 out of 31 economies in Latin America and the Caribbean are indeed
already using active and passive labour market policies in response to cur-
rent economic circumstances.53 The cost of new programmes is relatively
low. For example, Argentinas spending peaked at about 1 per cent of GDP.
Based on this cost level, such programmes could be an appropriate tool if
there is political will by policy-makers.
53
Economic Commission for Latin America and the Caribbean, 2008.
Box 6 Enhancing public employment services and active labour market programmes
France: Ple Emploi, the newly created agency that merges employment services and
unemployment insurance, is increasing the resources available to enhance employment
services, facilitate training for jobseekers and support the effort of social partners to
coordinate measures to address the financial crisis.
Mexico: the BCATE programme of the National Employment Service is being expan-
ded to provide various training programmes, including apprenticeships, which include
monthly financial support for trainees and counselling on how to start a business.
Philippines: Public Employment Service Offices (PESOs) have been mobilized to intensify
job placement, emergency employment and livelihood formation services, particularly
for workers in commodity and export industries.
Democratic Republic of Congo: An anti-crisis strategy has been put in place, moni-
tored by an inter-ministerial committee. It includes a programme to upgrade the skills
of both employed and unemployed workers in a way that responds to labour market
requirements.
46
Box 7 The ILOs Employment-Intensive Investment Programme
The ILOs Employment-intensive Investment Programme works with governments,

employers and workers organizations, the private sector and community associations
in orienting infrastructure investments towards the creation of higher levels of productive
employment, as well as towards the improvement of access to basic goods and services
for the poor. Many of the programmes projects rely on labour-based technologies, in
order to generate local employment and incomes and develop skills.
Labour-based technologies have several benefits: they are between 10 and 30 per cent
less costly than more equipment-intensive options; foreign exchange requirements are
reduced by about 50 to 60 per cent; between 2 and 4 times more direct employment
opportunities are created for the same investment; indirect employment ranges between
1.5 and 3 times the numbers of direct jobs stemming from the initial investment. Over
the last 30 years the programme has played a vital role in over 60 countries in Africa, Asia
and Latin America in dealing with job creation and poverty reduction in rural and urban
areas. It has also developed methodologies to ensure cost effectiveness of the measures.
Leveraging local partnerships to enhance effectiveness

The effectiveness of employment-intensive investments, skills develop-
ment and active labour market programmes can be improved by leverag-
ing capacity among local partners the foundation upon which the ILOs
employment-intensive investment programme is built (box 7).
Enhancing social protection, especially among low-income groups
As earlier sections illustrated, as the crisis unfolds, the risks that individu-
als around the world are facing are exacerbated by limited access to social
security schemes and social safety nets. At the same time, in countries where
such schemes do exist, pressures on their finances, e.g. pension systems,
are intensifying as countries experience the double burden of declining tax
contributions and increasing expenditures due to rising claims.
47
Well-designed social policies can alleviate the consequences

of the crisis in the short run
Supporting workers and their families through well-designed social poli-
cies a core ILO competency is a key component to averting a social
crisis and stimulating the economy more broadly.54 Neglecting victims
of the crisis, and of the interconnecting food, energy and poverty crises,
would be unfair and could undermine support for government rescue plans.
Moreover, supporting low-income groups, which typically have a high pro-
pensity to consume, would help stimulate aggregate demand and restore
confidence.
by helping low-income and other vulnerable groups

while supporting the recovery
One way to provide assistance to individuals is to widen eligibility condi-
tions and increase benefit amounts of existing social security schemes, e.g.
by extending the duration or increasing the generosity of unemployment
benefits (see table 4 for examples of countries that have already done this).
In the absence of existing schemes, however, it may be necessary to intro-
duce new measures to help low-income and other vulnerable groups.
For example, income support measures such as conditional cash transfers

could be further strengthened (or introduced) to enhance human capital
and access to education and health services, especially for the poor (see box
8). This is particularly relevant given that in many low-income countries,
crises are associated with poorer health and education outcomes for chil-
dren, while in middle-income countries, they are associated with poorer
health outcomes.55 Investments in childrens education and health services
also have a long-term systemic impact on poverty levels. Social and care
services also provide job opportunities for women who may not be able to
take up construction work on infrastructure projects.
54
See for example Lee, 1998.
55
Childrens human capital outcomes are not uniformly affected in a crisis. For instance, during economic
or environmental crises, health outcomes suffered in the Philippines and Uganda, while education out-
comes were not dramatically affected in Brazil, Indonesia and Uganda (see Skoufias, 2003). World Bank:
Lessons from World Bank research on financial crises, Policy Research Working Paper No. 4779, 2008
48
Box 8 Conditional cash transfers
Conditional cash transfers provide cash to poor families linked to certain educational
and health-related conditions. The most common conditions focus on childrens school
attendance, health care check-ups and nutrition. Recent studies show that one-third of
developing countries have implemented some kind of cash transfer programmes.
Conditional cash transfers have been effective at smoothing recipients consumption

during times of crisis. For example:
In Nicaragua, during the Central American coffee crisis, they smoothed consumption,
protected childrens school enrolment, reduced child labour and improved health
outcomes.
Similarly, in Honduras, they allowed families to keep their children in school during
the crisis.
They were also successfully introduced as part of earlier crisis responses in Colombia
and Turkey.
Indonesias scholarship and school subsidy programme was introduced in 1998 as a
part of the Governments crisis response.1
1
For some evaluations of these programmes, see van Ginneken, 2005; Handa and Davis, 2006; Rawlings and
Rubio, 2005; and Sparrow, 2007.
In cases where conditional cash transfers do not exist, establishing a new

programme can be a complicated, time-consuming and administratively
challenging process, entailing considerable data-collection and monitoring
capacity which may be difficult to mobilize in times of crisis. Consequently,
in low-income countries where poverty is widespread and administrative
capacity limited, unconditional transfers could be considered as a way to
enhance universal social protection.
A wide range of other tools and targeted intervention programmes could

be envisioned to support vulnerable groups such as workers in the informal
sector and rural areas, e.g. the labour-intensive public works programmes as
undertaken by many governments during crises (Argentina, Indonesia, the
Republic of Korea and Thailand). As discussed above, employment guarantee
programmes of this nature can potentially combat both poverty and unem-
ployment with positive secondary effects on, among other things, health,
crime and political stability. Other types of income and employment entitle-
49
ment programmes, such as those offered by the Self Employed Womens

Association in India or the Grameen Bank in Bangladesh, could also help
provide much needed social protection to vulnerable groups in times of
crises. For programmes targeting informal workers, particular attention to
the gender dimension will be crucial.56
and protecting pensions from the volatility of stock markets

In order to avoid losing ground both against existing poverty thresholds
and the rates of replacement income provided, it is necessary to restore
solidarity-based minimum guarantees of pension amounts underwritten
by the State, and protect the pension levels of individuals who are close to
retirement. In certain countries (such as India), the elderly rely heavily on
income from savings, which is likely to be severely curtailed with current
interest rate drops. In addition, in countries that rely on annuitization of
individual savings accounts, any prolonged suppression of interest rates is
likely to lead to serious difficulties because of increased volatility in annuity
rates (prices).
As a transition measure, a minimum pension based on a reasonable mini-

mum rate of return ought to be financed or guaranteed by the state.
Governments could also authorize pension schemes to reduce their levels
of capitalization. One possible approach is to allow schemes to go into
temporary actuarial deficit. If asset prices rebound in due course, then
the ultimate net cost of such guarantees would be only a fraction of the
momentary losses of pension assets.
The OECD has suggested that governments could play a more active role
in managing the risks associated with the payout phase of pensions and
annuities. In particular, governments could encourage the development of
longevity-hedging products by producing an official longevity index. Other
proposals include suggestions for governments to issue longevity bonds that
would set a benchmark for private issuers, while also giving consideration
to issuing more long-term and inflation-indexed bonds a move already
taken by a small number of countries, most recently the Danish government,
56
A. King-Dejardin: Gender dimensions of globalization, discussion paper presented at the
Oslo Conference on Decent Work: A key to Social Justice for a Fair Globalization, 4 September 2008.
50
which released a 30-year bond that was primarily bought by domestic pen-
sion funds and insurance companies.
But these measures should form

the basis of a broad-based social protection for all
While the above measures to protect the most vulnerable are important
steps to addressing current challenges, they should form part of a system-
atic effort to develop a broad-based social security system (covering social
assistance, education, health, unemployment benefits, etc.) and an overall
poverty reduction strategy.
which can help mitigate the impacts of future crises

Experience in several European and, more recently, some Asian countries
has shown that a system of basic social security can mitigate the impacts of
crises by means of automatic stabilizers measures of support that automat-
ically increase during times of crises or increased household vulnerability.
and, if consistent with employment goals,

support development objectives
Moreover, increases in social spending do not impede growth. On the con-
trary, if social protection is designed in a way that takes into account work
incentives, it can boost the quality of growth through its pro-poor elements.
For example, countries that have high social spending also tend to have lower
levels of poverty and inequality.57 In other words, social security measures
should, and can, be designed in such a way as to go hand in hand with eco-
nomic policy to increase production, social protection and redistribution
while addressing broader social issues such as family, care and poverty.
Just as the Great Depression was a defining moment in the United States
in creating the Social Security Act (1935) and the financial and economic
crises of the 1990s were defining moments in Asian and Latin American
social policy innovation, this current crisis should be taken as an opportu-
57
ILO: World of Work Report 2008. Income Inequalities in the Age of Financial Globalization, IILS,
Geneva, 2008.
51
nity to enact much-needed reforms to social security systems. In this respect

the Social Security (Minimum Standards) Convention, 1952 (No. 102) can
guide efforts to strengthen social security systems.
Protecting the rights of workers
In attempting to address the challenges associated with the crisis, it is cru-

cial to ensure that workers rights and international labour standards are
not compromised in the process. In fact, the observance of fundamental
principles and rights at work must be part of the solution to the crisis.
Moreover, respect for fundamental principles and rights at work is necessary
to maintain social justice and peace, and to avoid political unrest which
could create even greater delays in terms of a recovery.
Reduced labour standards would be both unfair

and counter-productive
Some argue that labour market rigidity and overly stringent labour stand-
ards restrict the capacity of an economy to cope with economic shocks
and that labour market flexibility can temper both the depth and duration
of unemployment in the current crisis.58 However, there is considerable
evidence drawn from cross-country studies that illustrates that there is no
clear relationship between fewer labour regulations and faster economic
and employment growth.59 Efforts that are focused exclusively on speeding
up the labour market adjustment process to cope with the global economic
crisis run the risk of impairing long-term growth potential.
Maintaining labour standards helps support confidence and thus contributes

to activating the economy. Moreover such measures would be equitable and
enable vulnerable workers to deal with labour market risks, thus enhancing
popular support for recovery packages. The different national situations now
arising in the context of the crisis highlight the relevance of the ILOs full
complement of instruments to protect workers rights (see box9).
58
This is under the assumption that in rigid labour markets, relative prices (wages in this case) are sticky,
and therefore the brunt of the adjustment process is borne via the depth and duration of unemployment.
59
J. Berg; D. Kucera: In defence of labour market institutions. Cultivating justice in the developing world, ILO,
Geneva, 2008; A. Ghose; N. Majid; C. Ernst: The global employment challenge, ILO, Geneva, 2008; Baker
et al.: Labour market institutions and unemployment : A critical assessment of the cross-country evidence, 2005.
52
Box 9 Relevance of ILO instruments in the crisis context
The ILO has a comprehensive set of instruments to protect workers rights.

The following are examples of the relevance of these instruments in the context of
the crisis:
As pressures on firms mount, the Protection of Wages Convention, 1949 (No. 95)
and the Protection of Workers Claims (Employers Insolvency) Convention, 1992
(No. 173), along with their associated Recommendations, lay out constructive measu-
res for protecting workers wages and proceeding fairly in cases of an employers
insolvency. Where lay-offs arise, it is important to ensure that terminations are not
discriminatory on any of the grounds provided in the fundamental Conventions. The
Termination of Employment Convention, 1982 (No. 158), and Recommendation
(No. 166), shed light on how terminations can take place in a balanced manner.
The provisions of the Tripartite Declaration of Principles concerning Multinational
Enterprises and Social Policy (MNE Declaration) could be particularly useful in mana-
ging the effects of the recession along global supply chains. To protect the employment
security of workers in atypical employment situations, the Employment Relationship
Recommendation, 2006 (No. 198) is salient.
Instruments concerning migrant workers (the Migration for Employment Convention
(Revised), 1949 (No. 97) and the Migrant Workers (Supplementary Provisions)
Convention, 1975 (No. 143)) are also highly relevant, given that this group is parti-
cularly vulnerable in the context of the downturn in labour markets.
The Labour Clauses (Public Contracts) Convention, 1949 (No. 94) can help ensure
that investments financed by public stimulus packages generate jobs with decent pay
and working conditions.
In the context of enhancing social protection, the eight fundamental Conventions
(Forced Labour Convention, 1930 (No. 29); Freedom of Association and Protection
of the Right to Organise Convention, 1948 (No. 87); Right to Organise and Collective
Bargaining Convention, 1949 (No. 98); Abolition of Forced Labour Convention,
1957 (No. 105); Equal Remuneration Convention, 1951 (No. 100); Discrimination
(Employment and Occupation) Convention, 1958 (No. 111); Minimum Age
Convention, 1973 (No. 138) and Worst Forms of Child Labour Convention, 1999
(No.182)) can guide poverty alleviation efforts and, along with Convention No. 102,
efforts to strengthen social security systems. Fundamental Conventions are crucial
to ensuring a more balanced distribution of the gains from economic growth and
reducing excessive inequalities a key factor behind the crisis.
Social dialogue mechanisms and processes, as outlined in the Tripartite Consultation
(International Labour Standards) Convention, 1976 (No. 144), and the Tripartite
Consultation (Activities of the International Labour Organisation) Recommendation,
1976 (No. 152), as well as in the Consultation (Industrial and National Levels)
Recommendation, 1960 (No. 113) and the MNE Declaration, need to be part of the
strategy.
Overall, the Employment Policy Convention, 1964 (No. 122) based on policies for
full, productive, and freely chosen employment can provide a useful overarching
framework for international action.
53
and the crisis represents an opportunity to emphasize

the role of workers rights
The crisis should be taken as an opportunity to reinforce the value of
protecting and respecting workers rights.60 Measures should be taken to
guarantee impartial and efficient judicial, as well as extra-judicial, proceed-
ings dealing with individual and collective disputes. Labour inspection and
administration systems should be reinforced to guarantee implementation
of measures taken to combat the crisis and its social consequences and to
provide services to employers and workers. Public employment services and
labour inspection have a special responsibility in this regard.
Better enforcement of workers rights could help achieve more balanced

income developments and thus reduce the risk of future crises.61 A consist-
ent finding is that countries that have labour-friendly regulations seem to
be associated with lower wage inequality a tangible social benefit with-
out imposing any significant loss in terms of output and employment.62 A
rights-based approach to the crisis can thus anchor the discussion of policy
options, to enhance social justice in the immediate and longer term.
The role of social dialogue and wage determination
Social dialogue plays an essential role

in protecting rights and achieving employment objectives
The Declaration of Philadelphia established the ILOs commitment to
social dialogue, tripartism and participation. Its central importance has
been sustained over the decades. More recently, in 2002, the International
Labour Conference adopted a resolution concerning tripartism and social
dialogue, recognizing that social dialogue plays an essential role in the
achievement of employment objectives and the improvement of social pro-
tection. Social dialogue can be instrumental in adopting effective, concrete
policy responses by helping to improve the design of reforms, and it can
help to bolster support for reforms in general.63
60
Rychly: op. cit.
61
Berg and Kucera: op.cit.
62
See for example, Freeman, 2006.
63
Rychly: op. cit.
54
Box 10 Lessons from social dialogue in previous crises
Singapore: To counter the 1997-1998 financial crisis, the government introduced new
labour policies. In particular, as a result of a tripartite agreement, employers received
financial incentives if they avoided layoffs. Tripartite institutions as well as ad hoc tri-
partite agreements were very effective in articulating conflicting interests between the
three parties, resulting in more effective formulation and implementation of social and
economic policies.
Republic of Korea: To respond to the 1997-1998 financial crisis, a Tripartite

Commission was created. The Commission had two major objectives: to contribute to
economic restructuring and to involve social partners in the revision of Korean labour
law, in line with ILO standards. A Social Agreement adopted by social partners in
February 1998, accepted layoffs of redundant labour force as an economic reality, but
it also significantly enlarged workers basic rights, substantially expanding freedom of
association and the right to bargain collectively, both in the private and public sectors.
This Great Compromise improved the governments crisis-management capacity, and
was instrumental in reaching national consensus and helping the country overcome the
credit crunch.
social partners can be instrumental

in designing and implementing reforms for overcoming crises ...
At the Eighth European Regional Meeting of the ILO (Lisbon, February
2009) participants emphasized the significance of social dialogue as a key
means of developing strategies to counter the recession and secure the com-
mitment of governments, employers and unions for implementation of
the strategies.64 Indeed, examples from past crises can be identified which
illustrate how national tripartite consultations have played an important
role in overcoming severe economic difficulties. For example, in Singapore
measures were introduced to mitigate excessive layoffs, whereas in the
Republic of Korea, eventual agreement improved the governments crisis-
management capacity, and was instrumental in reaching national consensus
(box 10).65 In addition, Argentinas post recovery process was based on a
social pact bringing all the social partners together.
64
GB.304/14/4.
65
For a comprehensive discussion of social dialogue in the post-crisis context, see Campbell in Betcherman
and Islam, (eds), 2001.
55
and finding pro-decent work solutions to immediate

and longer term challenges
At the national level, the existing institutional framework, as well as newly
established consultative bodies, should be used to identify and implement
appropriate national policies. Where these bodies do not exist, ad-hoc
high-level meetings should be held to exchange information and to consult
or negotiate policy measures. In difficult times, it is of particular impor-
tance to build and maintain mutual trust between the State and the social
partners and among the social partners themselves. The ILO can play an
important role in this context. Social dialogue and collective bargaining
are powerful tools to cope with immediate challenges of the crisis, such as
preventing social unrest, avoiding damaging industrial actions, reducing
income inequalities and maintaining social cohesion. Through improved
governance social dialogue can also pave the way for shared prosperity and
stability in the longer term.66
especially as regards wage developments

a particularly contentious issue
One point of contention is wage-setting practices. In particular, some advo-
cate wage moderation in an attempt to cut costs and prevent job loss in
ailing firms. Others argue for maintaining purchasing power and aggregate
demand.
Overall, to sustain the recovery, average real wages should grow in line with pro-
ductivity and minimum wages should not fall
Paradoxically, both views are probably valid. On the one hand, firms are
facing significant financial difficulties and their viability, including that of
the employees, may rely on significant cost reductions. Such reductions,
which take the form of, among others, wage freezes or cuts perhaps even
in line with productivity declines can help firms survive and avoid lay-
offs.67 In addition, earlier experiences in Asia and Latin America show that
lower wages played a strategic role in the response to the crisis. Lower
wages, together with currency devaluations, resulted in massive improve-
66
Countries with coordinated collective bargaining have been shown to have less wage dispersion compared
to other countries. T. Aidt and Tzannatos, 2002.
67
Other measures to avoid job loss were discussed throughout the report.
56
ments in external competitiveness. The latter, in turn, was instrumental in
the recovery of these countries.
On the other hand, given the global nature of the current crisis, a generali-
zation of wage restrictions in the name of competitiveness and better prof-
itability would most likely push the world economy into further trouble.
This is a real risk. Indeed, excessive wage developments are not the cause
of the crisis. In fact, evidence suggests that real wages have tended to grow
below productivity gains since the early 1990s.68 On average, pre-crisis
profit rates were high by all standards. So, unlike the crisis of the early
1980s, low profitability has not been the main problem for most enter-
prises. In addition, stagnant median wages and incomes were an enabling
factor behind excessive debt accumulation.
In light of the evidence to date, this may mean that wages may need to
rise faster during economic upswings and less rapidly during downswings.
Altogether, as a response to the crisis as well as from a longer term perspec-
tive, it would be economically desirable as well as fair if average wages
would grow over the medium-term in line with productivity gains, taking
into account firms viability in the short-run.
In this respect, the role of collective bargaining and social dialogue will be
critical to achieving a desirable outcome. Employers and workers need to
be encouraged to participate in collectively negotiated wage-setting prac-
tices. Governments can help stimulate dialogue and facilitate concerned
action to avoid socially undesirable, and potentially inefficient, generalized
wage reductions. Moreover, collective bargaining can reduce overall wage
inequality and ensures a stronger link between economic growth and aver-
age wages.69
Governments can support this process through minimum wage legislation,

adjusted regularly to maintain the purchasing power and avoid sudden
adjustments, which are detrimental to job creation. The Minimum Wage
Fixing Labour Convention, 1970 (No.131), provides an important bench-
mark in this regard.
68
ILO: Global Wage Report, November 2008; ILO: World of Work Report 2008. Income inequalities in the age
of financial globalization, IILS, Geneva, 2008.
69
ILO: Global Wage Report, Nov. 2008.
57
IV. Improving global policy coherence
for more balanced growth and development
The need for greater global policy coherence has been emphasized many
times, and for good reasons. But it is especially important now. Unless
greater international coordination is achieved in the responses to the crisis,
the world economy will face the prospect of a protracted economic crisis,
entailing an even deeper labour market crisis and significant social hard-
ship. No international organization or country has the mandate for, or is
equipped to treat, all facets of the crisis and its underlying challenges. This
is why the G20 has emerged as a key forum to discuss the crisis.
The ILO has therefore committed itself to fostering greater cooperation

among national governments, international organizations, and other stake-
holders in support of a stronger, cleaner and fairer economy.70 It is important
to build on complementarities between the ILO and the different mandates
of other international organizations particularly the World Bank, the
IMF, the WTO, and the United Nations Environment Programme, among
others to enhance coherence between economic, financial, trade, social,
environmental and development goals.
Avoiding in-ward looking and protectionist solutions

The global crisis will not be solved by protectionist solutions. Rather, such
solutions would depress world trade and investment, further aggravating
the recession. Historical evidence from the Great Depression shows that
attempts to restore economic stability by closing borders to trade are bound
to fail and would generate even more substantial income and employment
losses in the long-run. The repercussions for developing countries, which
rely so heavily on world markets, would be especially acute.
70
See the joint press release by Chancellor Angela Merkel, OECD Secretary General Angel Gurria, WTO
Director-General Pascal Lamy, ILO Director-General Juan Somavia, IMF Managing Director Dominique
Strauss-Kahn and World Bank President Robert B. Zoellick on the occasion of their meeting on 5 February
2009 in Berlin.
59
The role of the multilateral system is critical and it will be important to

remain vigilant vis--vis the mounting pressure to support strategic sec-
tors like automobiles. Support should be temporary and tied to social and
environmental conditions. To complement this, however, it is of paramount
importance to help workers adjust, through a variety of training and re-
employment measures as discussed earlier.
Likewise, attempts to overcome the crisis through competitive currency

devaluations would be counterproductive. Some countries have already had
recourse to strong devaluations. In some cases, this may be justified on the
basis of economic fundamentals. However, currency devaluations with the
aim of improving competitiveness will not help overcome the global crisis
and may aggravate trade tensions. Here too, an orderly adjustment, through
proper international cooperation is clearly desirable.
Generalized wage deflation to protect individual economies would aggra-

vate the crisis even more than a wave of competitive devaluations. Indeed,
wage deflation would deprive the world economy of much-needed demand
and would also seriously affect confidence. Open market policies, which
are so crucial to the recovery, would also face a risk of backlash if workers
perceive the measures as unfair.
Reforming the financial architecture

so that it serves the needs of the real economy
Medium and long-term measures to overhaul the financial regulatory
framework are required to move towards a more stable global financial
system. Previously widespread practices such as excessive leveraging,
opaque financial instruments and executive compensation schemes need
to cease.71 In a few cases, limits on executive pay and bonuses have been
instituted as a condition for government assistance. But a more profound
change is clearly called for.
71
For a recent analysis of executive pay, see Ebert, Torres, and Papadakis: Executive compensations: Trends
and policy issues, IILS, Discussion Paper No. 190, ILO, Geneva, 2008.
60
IV Improving global policy coherence for more balanced growth and development
Indeed, despite the coordinated international responses in the short-run,
the global financial system is likely to remain marked by volatility until
significant structural adjustments are made. Therefore, in all countries, it
will be crucial to reinforce prudential regulation to reduce excessive and
irresponsible short-term risk-taking on the part of certain financial actors.
For instance, lightly regulated markets for financing mechanisms such as
private equity, hedge funds and non-bank financing have been held respon-
sible, in part, for sudden herd-like in- and out-flows of funds in certain
industries and sectors which may have magnified the effect of the current
crisis. A cautious approach to regulation is especially important in countries
where financial markets are not sufficiently developed and where supervi-
sion mechanisms are weak. The de Larosire report provides a rich menu
of how to move forward in this regard.72
and takes into account the social impacts

of different reform options
The regulatory reforms made in the coming months and years must be
assessed against their social impacts and implications for employment
growth. As the International Labour Conference emphasized in 2007,
financial services can indeed be used to promote decent work outcomes, if
regulated appropriately.73 Any new financial system should therefore give
incentives for productive investments in sustainable enterprises and decent
work, and disincentives to short-term speculation.
In this regard, the ILO has an important role in highlighting the social
impacts of the reforms to strengthen the inclusiveness of a new financial
architecture and help the international community strike the right bal-
ance between government regulation and corporate self-determination. The
ILOs Social Finance Programme, supported by analytical work, provides a
major benchmark in this respect.74
72
Available at http://ec.europa.eu/ireland/press_office/news_of_the_day/pdf_files/global_report_-_final.
pdf.
73
ILO: The promotion of sustainable enterprises, Report VI, International Labour Conference, 96th Session,
Geneva, 2007.
74
See for instance Balkenhol, 2007.
61
Promoting social sustainability of economic growth

One of the most significant challenges will be to ensure a more equitable
distribution of the gains from globalization, as highlighted in the Social
Justice Declaration. This is important in and of itself. In addition, as
noted in the first section of this paper, excessive inequalities are a key fac-
tor behind the financial crisis. Among advanced economies, high income
inequalities tend to go hand-in-hand with a greater burden of household
debt (figure13).
Figure 13 Household debt and income inequality in some OECD countries, 2005
0.9
Household debt-to-GDP ratio
United States
0.8
Netherlands New Zealand
United Kingdom
0.7
Australia
Germany
0.6 Republic of Korea Portugal
Ireland
Sweden Spain
0.5
Japan
Luxembourg
0.4
Finland France
Austria
Source: IILS, based on OECD & Bloomberg.
Belgium
0.3
Greece
Italy
0.2
Hungary
0.1 Czech Republic Slovak Republic
0
0.20 0.25 0.30 0.35 0.40
Gini Coefficient
Source: IILS estimates based on OECD data.
62
Moving forward, this means ensuring that tax policies are more progressive
than hitherto which requires international coordination so as to avoid
harmful tax competition to attract high-income groups and businesses.
Social protection reforms, as discussed in the third section of this paper,
can be designed in such a way that they serve both equity and efficiency
purposes.75 Also, countries that have stronger tripartite institutions are bet-
ter placed to ensure that the gains from globalization are distributed in a
balanced manner. Finally, rising non-standard and informal employment
which tend to pay less than formal standard jobs have contributed to
rising income inequalities in developed and developing countries alike.
More attention is therefore needed to the quality of employment created.
Financial globalization too, has reinforced the downward trend in the share
of income going to labour and more fundamentally, has intensified eco-
nomic instability. A new financial architecture, along the lines discussed
above, must consider these social consequences in order to produce more
stable and equitable employment and economic growth.
as well as environmental sustainability

Globally, increased emphasis has been placed on investing in energy effi-
cient technology for greener and more sustainable growth, and several gov-
ernments have announced stimulus programmes designed to make progress
in that regard (see box 11). In some cases, the bulk of greener jobs created
is likely, at least initially, to be in traditional sectors such as construction.
Nevertheless, green investments should be viewed as an important step
towards revitalizing the economy and generating more environmentally-
friendly, decent work. And, in the medium to longer term, such invest-
ments can put countries on a path toward greener and more sustainable
growth.
75
ILO: World of Work Report 2008. Income Inequalities in the Age of Financial Globalization, IILS, Geneva,
2008.
63
Box 11 Green investments and job creation as a response to the crisis: Some examples
Japan: To strengthen growth potential and move to a low-carbon society, the govern-
ment plans to invest 100 trillion yen in green projects by 2015 which would create more
than 2 million jobs in environmental businesses. The green initiatives include: accele-
rating the introduction of energy-saving and new energy technologies; subsidies for the
development of the next generation high-speed railway; tax incentives for investments
in energy-saving and new-energy facilities and equipment; and greater resources for
research and development on cutting-edge environment technologies, including carbon
dioxide capture and storage.
Republic of Korea: The government recently announced new investments in the order
of $38 billion for a series of green initiatives to be rolled out over 2009-2012. This
Green New Deal provides for nine core projects and 27 subsidiary projects in areas
such as the restoration of major rivers, renewable energy, energy conservation, green
transportation, clean water, recycling, and carbon reduction. These projects are expected
to create as many as 960,000 new green jobs.
United States: The American Recovery and Reinvestment Act, signed by the President
of the United States on 17 February 2009, includes significant investments in clean
energy programmes. $5 billion is allocated for programmes to help low-income house-
holds weatherize their homes, which is expected to create about 375,000 jobs. Grants
for energy efficiency in residential and commercial buildings amount to over $6 billion.
These may create more than a million jobs, particularly in the construction sector, which
has been hard hit by the recession.1 $500 million is allocated to help workers train for
green jobs, while $11 billion is allocated for smart grid investments, $3.4 billion for
carbon capture and sequestration demonstration projects, and $2 billion for research
into batteries for electric cars.
1
D.J. Weiss, A. Kougentakis: Recovery plan captures the energy opportunity, Center for American Progress, 13
February 2009.
64
Addressing the development dimension
Even before the onset of the current financial crisis, food, education, health,
social and environmental challenges existed for many developing countries.
And the crisis is likely to aggravate the situation.
by building capacity, notably administrative

and institutional, in developing countries
As outlined in the third section of this paper, the ILO has developed exper-
tise to help promote development through decent-work-friendly policies.
The following are important policy elements of the global jobs pact: the
implementation of job-rich infrastructure and housing projects, the fight
against child labour and in favour of schooling, the build-up of social pro-
tection systems as fiscal conditions permit, and the enlargement of the fiscal
space through well-designed policies that facilitate transition to the formal
economy. In this context it is to be kept in mind that respect for core labour
standards is not only a key social goal, but also creates the conditions for
balanced economic development, itself conducive to greater prosperity in
the long-run.
It is crucial to build up administrative and institutional capacity to make

these programmes effective and to engage social dialogue as part of the
strategy. The recent Mexican anti-crisis reform (Acuerdo nacional en favor
de la economa familiar y el empleo) provides an interesting example of
what can be done.
and creating a global jobs fund

Some countries are better-positioned than others. For example, those which
took steps to better manage their economies and avoid excessive risk-taking
and leverage are likely to be impacted less. Others are confronted with an
array of challenges including limited fiscal space, a fragile current account,
and potential runs on their currency. Indeed, countries inheriting large fis-
cal and current account deficits will be much more vulnerable, especially if
these imbalances are driven by exogenous circumstances (most notably the
65
need to cope with the terms of trade shock unleashed by the food and fuel
price crisis of mid-2008).
Circumscribing policy options of particular developing countries with a

framework of conditionalities by international financial institutions will
compound the difficulties faced by such countries (see box 12).76
What is needed is a counter-cyclical global mechanism, as advocated by

some analysts.77 For instance, a global jobs fund would provide support
to countries facing the global crisis. It would rely on a line of credit sepa-
rate from that of the traditional IMF package. And it would provide the
necessary stabilization credit needed to sustain the external crisis without
aggravating social hardship. Indeed the credit would not be subject to the
condition that social protection and minimum wages be cut. Instead, it
would be used to help revitalize the economy through investments that
strengthen development prospects. Importantly, the measures would be
adopted as part of national dialogue, so as to improve social cohesion.
Involvement of the ILO, side by side with IMF and World Bank, would
be crucial. Indeed, as shown in the third section of this paper, ILO has the
expertise to design programmes that help create decent work and sustain-
able enterprises.
The President of the UN General Assembly has established the Commission

of Experts on Reforms of the International Monetary and Financial System
(the so-called Stiglitz Commission) to draw attention to the asymmetries in
the capacities of developed and developing nations to respond to the crisis,
among a range of other important issues. Through its position in the UN
system, the ILO can support the Commissions work by pointing to the
employment and social consequences of existing and proposed solutions to
crises in developing countries.
76
More details on these issues will be provided in a forthcoming ILO publication by the Employment
Sector.
77
See for instance UNDESA: Massive, globally coordinated fiscal stimulus is needed: Going from the drawing
board to swift action, Policy Brief No. 11, January 2009. Also, the World Bank has called for the creation of
a fund to help vulnerable countries.
66
Box 12 Macroeconomic stabilization in the wake of financial/economic crisis
Pakistan: In November 2008 Pakistan entered a stand-by arrangement with the IMF for
a $7.6 billion adjustment programme to cope with its rising fiscal and current account
deficits and price inflation. The adjustment programme calls for a reduction of the fiscal
deficit to 4.2 per cent in 2008-09, and to 3.3 per cent during 2009-10, and an interest
rate hike of 200 basis points to 15 per cent. These measures would inevitably dampen
aggregate demand and the government has already lowered its growth rate forecast from
5.8 per cent achieved in 2007-08 to 4.4 per cent in 2008-09, with official admissions
of worsening of unemployment and poverty. They would also run counter to policies
advocated in international forums to stimulate the global economy. Indeed, the above
pro-cyclical measures are likely to dampen global demand even further, and exacerbate
poverty and unemployment in both Pakistan and its trading partners.
Ukraine: Between 2000 and mid 2008 Ukraines economy was buoyant, with average
annual growth in excess of 7 per cent. The fiscal position of the country was generally
sound and the level of public foreign debt was moderate. However, in November 2008
the country signed a standby agreement with the IMF for $16.4 billion. This move came
as a result of Ukraines faltering economy in the second half of 2008 when commodity
prices declined sharply, export markets contracted, and a large bank was placed under
receivership events which sparked massive capital outflows, a crisis on the foreign
exchange market, significant currency devaluation, a major credit crunch in the real
economy, and a massive increase in unemployment.
The recapitalisation of commercial banks is a high priority in the standby agreement

with the IMF, but this is an extremely expensive undertaking. It is estimated that bank
recapitalisation will cost at least 8 per cent of GDP, including 4.5 per cent of GDP
for recapitalisation of foreign-owned banks. Given that a significant proportion of the
recapitalisation costs will be borne by the government, at a time when tax revenues are
declining dramatically, the government is required to significantly reduce other areas of
public expenditure to produce a balanced budget in 2009 (as per IMF provisions).
Much of the fiscal tightening is expected to come through reduced expenditure on public
sector wages and benefits, reductions in the overall level of social expenditure, revised
indexation arrangements for social transfers, and a postponement of a planned increased
in the minimum wage. These reforms imply a significant decline in the real value of
pensions and other transfer payments, and a fall in real minimum wages. While it is
important to restore the flow of credit to viable enterprises, the costly recapitalisation
of the banks raises concerns, particularly when the opportunity cost is a substantial
reduction in public expenditure on social security.
Source: Planning Commission: Economic Stabilization with a Human Face, Report of the Panel of Economists,
GOP, October 2008; Nasir, 2009; Kyloh and Saget: A common crisis but contradictory responses: The European
experience 2008/09, (Ukraine), ILO Policy Integration Department, forthcoming 2009.
67
In sum, a global jobs pact with decent work principles at

the fore can pave the way for a more sustainable economy in the longer term
It is imperative that responses to the crisis should not just be seen as piece-
meal measures to be rolled out temporarily, only to revert back to business
as usual as soon as possible. The challenge now is to respond to the current
crisis through measures, which, as discussed above, pave the way for a better
pattern of growth and development. Global coordination efforts currently
underway could increase the propensity for multilateralism to tackle devel-
opment challenges more creatively and effectively in the future.
In this way, international partners can contribute to a better global econo-

my and society, which, together with a new financial system, can form the
foundation for more sustainable development. In this respect, the ILO has
an important role to play within the multilateral system, in cooperation
with its partners at the national level, to advance opportunities for women
and men around the globe to live and work in conditions of freedom,
equity, security and dignity.
68
V. Assessing the effects of the global jobs pact
on the recovery
Nearly 90 million people will enter

the labour market during 2009-2010
In order to assess the extent of the job challenge, it is useful to examine
likely trends in labour market participation. Demographic projections sug-
gest that, during 2009-2010, the population aged 15 and over will increase
by nearly 148 million people (Figure 14). Among them, over 89 million
aged 15-64 will be looking for employment on the assumption of con-
stant participation rates. In other words, 89 million net new jobs will need
to be created over the next two years to keep unemployment at its level of
end-2008.
Figure 14 Estimated labour market and social developments, 2009-2010
LEGEND
Increase in 2009/10 World population

+156.8 million
Stock 6.8 billion
Age 0-14 Age 15+ Youth (15-24): +10.9 m

+9.0m +147.8 million Age 25+: +136.9 m
1.8 billion 5.0 billion
Inactive Population Economically Active Population Age 15-64

+53.4 million +89.2 million
1.7 billion 3.3 billion
Source: Based on Economically Active Population Estimates and Projections (EAPAP) 1980-2020
(5th edition), which covers 191 countries and territories and 29 economic and geographical groupings.
69
This is a major challenge. Experience from earlier recessions suggests that

the jobs deficit is likely to widen dramatically. During the slowdown of
1993-1994, employment grew by a total of over 69 million. But world
GDP had grown by an average of 2 per cent during this period, compared
with falling GDP this year and an uncertain, mild recovery predicted by
most analysts for next year.
To avert a major jobs crisis,

stimulus efforts need to be greater, more job-oriented
The IMF recommends that global stimulus be in the order of 2 per cent of
GDP but among the 32 countries assessed, fiscal stimulus stands at only 1.7
per cent even less as a share of world GDP (Table 5). Moreover, stimulus
as a percentage of GDP for advanced economies is only 1.3 per cent less
than half that allocated by developing and emerging economies. In light of
deteriorating economic and social conditions, such efforts are likely to be
inadequate to avert a major jobs crisis.
Table 5 Existing stimulus measures as a percentage of GDP1
% of GDP % of World GDP
Total 1.7 1.4
Advanced Economies 1.3 -
Developing & Emerging Economies 2.7 -
1
Based on 32 countries with available information.
Source: IILS estimates based upon various sources; IMF (GDP figures).
70
V Assessing the effects of the global jobs pact on the recovery
Figure 15 Decomposition of rescue packages1,2,3
Panel A: Advanced Economies
Tax Cuts, 34.1


Panel B: Developing & Emerging Economies Tax Cuts, 3.0

1
Based on 22 countries (10 advanced and 12 developing & emerging) where data on decomposition is
available
2
Other spending includes all other measures, which are country specific and/or difficult to categorize in the
first four categories. Some of the components include, for example, direct/indirect help to businesses, indirect
transfers for consumers, and increased funding for education and health
3
It is not possible to separate out labour tax cuts from other tax cuts.
Tax cuts with difficult-to-gauge effects on employment represent over

one third of fiscal stimulus in advanced economies (Figure 15). Conversely,
little emphasis has been placed on allocating resources to direct employment
measures or assistance to low-income households, even though these meas-
ures are crucial to averting the jobs and social crises. In advanced economies
only 3 per cent of total spending is on employment measures while develop-
71
ing and emerging economies are spending 0.2 per cent. Furthermore, social
transfers to low-income households comprise a relatively small percentage
for both groups (10.8 per cent in advanced and 6.8 per cent in developing
and emerging).79
... better coordinated and timely.

The speed at which governments react to the crisis by implementing rescue
efforts will significantly influence the impact of such measures (Figure 16).
Implementing stimulus measures by all countries within the next three
months (Q2 2009) would help limit job losses and support job creation at
a sufficient speed as from mid-2010. But if stimulus efforts are delayed by
three additional months (to Q3 of 2009), the jobs crisis will be prolonged
and severe. Indeed, in this scenario, employment would start growing at a
sufficient speed to start reducing the jobs gap as from early 2011.
Figure 16 Recovery from the crisis depends on the timing of efforts

Immediate and sustained

stimulus efforts
3 month delay
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2009 2010 2011
79
Estimates based on a model developed for the purposes of this report suggest that changing the mix of
fiscal stimulus packages towards more employment-related investments (increase by 10 percentage points in
the share of spending on these investments, compensated by across-the-board cuts in other measures) would
yield nearly 25% higher employment compared with fiscal packages as currently designed (Ernst and Charpe,
forthcoming 2009).
72
V Assessing the effects of the global jobs pact on the recovery
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The Financial and Economic Crisis:

A Decent Work Response

INTERNATIONAL LABOUR ORGANIZATION

Copyright International Labour Organization (International Institute for Labour

Short excerpts from this publication may be reproduced without authorization, on

ISBN Print: 978-92-9014-900-2

First published 2009

Graphic design in Switzerland ALI

Raymond Torres (Executive Summary)

These proposals have been discussed by the ILO Governing Body in

This study provides a solid contribution to the global debate on crisis

The global crisis is deepening

Importantly, the crisis is spreading throughout the real economy by means

... and entails a risk of a prolonged labour market recession ...

and job losses mount, worldwide unemployment could increase by at least

The bleak labour market picture affects certain groups disproportionately

The biggest risk is of a prolonged labour market recession. Lessons from

... threatening social stability

Countries have attempted to address the crisis through

... but the plans have not succeeded so far ...

because the credit system has not been revived

... fiscal packages do not focus sufficiently on decent work

Lack of international coordination obviously diminishes the overall effect of

Generalized wage deflation to protect individual economies would aggravate

little attention has been devoted to the development dimension

Moreover, many developing countries lack the capacity to undertake mas-

Traditional International Monetary Fund (IMF) packages to support coun-

What is needed is a global jobs pact

A global approach is needed because the measures, to be effective, need to

To restore credit, governments could consider:

Making financial support, such as governments assumption of toxic

Providing credit lines and direct access to government loans to small

Fiscal stimulus packages would provide a much stronger boost to the

Ensuring that infrastructure, construction and housing projects leverage

Given the lags in launching infrastructure, construction and housing

Enhance fiscal space, administrative capacity and technical support to

Avoiding wage deflation through coordinated systems of collective bar-

Strengthening respect for core workers rights, as this would be both

Guaranteeing the purchasing power of minimum wages, so that they act

Nearly 90 million net new jobs

According to demographic projections, and on the assumption of constant

It is therefore crucial to implement a coherent, job-oriented recovery strate-

Global policy coherence for shared prosperity and development:

Debates at the G20 could offer an opportunity to discuss these issues,

List of tables, figures and boxes

The objective of this paper is to provide evidence-based policy analysis

The second section examines current international and national responses

Table 1 World Economic Outlook1

United States 1.1 -2.6 -3.9 -0.9

Africa 5.2 3.4 : 4.1

and the crisis is now spreading to the rest of the world

Box 1 The crisis: causes and transmission mechanisms

Box 1 The crisis: causes and transmission mechanisms

Source: World Bank.

with severe impacts on certain sectors

Global unemployment rose in 2008 and employment levels

with already visible impacts on emerging and developing countries ...

Following job losses in factories on the industrialized eastern coast of

During the last quarter of 2008, employment in eight export-oriented

The South African economy may lose a quarter of a million jobs as a

Reflecting a sudden deterioration in the economic outlook, Central and

Significant job losses have been recorded in developing countries that

In these countries, job losses will exacerbate challenges of employment